An initial public offering (IPO) involves listing a firm’s shares for sale on a stock exchange for the first time (known colloquially as “going public”). This essay analyzes two questions critically. First, does mandatory environmental, sustainable, and governance (ESG) disclosure increase the net costs of going public, so that privately owned companies are less likely to do so? Second, if private companies are indeed less likely to go public, what are the associated economic costs of that choice?
Mandatory ESG disclosures are distinct from mandatory ESG practices. While both have costs and benefits, their magnitudes are likely to differ, and the conceptual arguments underlying their benefits and costs may also differ. In this paper, we focus on mandatory ESG reporting, not on ESG practices. Mandatory ESG disclosures are requirements that stock exchanges and securities regulators impose.
