Misreporting of Mandatory ESG Disclosures : Evidence from Gender Pay Gap Information

We examine misreporting of gender pay gap information. Beginning in 2017, the UK government mandated that UK employers report gender employment ratios and pay gaps. The mandate does not include an audit requirement and has received little regulatory enforcement. Nonetheless, supporters of the mandate argue that reputation and legal costs should prevent misreporting. We find that a large number of employers misreport as evidenced by their reporting a set of disclosures that in concert are mathematically impossible. We also find that a disproportionate number of employers report perfectly-balanced gender statistics, consistent with some firms intentionally misreporting. We document a link between misreporting and firms' broader ESG considerations: firms involved in an ESG controversy are more likely to report perfect gender statistics, and firms reporting no gap in their median pay receive higher social pillar ESG ratings. Our results suggest that gender pay gap reporting mandates are less effective in the absence of enforcement, and that stakeholders and researchers should exercise caution when using self-reported ESG information either directly, or indirectly via ESG scores, to measure ESG performance