Who Pays Attention to Sustainability Reports and Why? Evidence from Google Search Activity

We introduce country-level Google search activity as a direct measure of the level of stakeholder attention directed toward sustainability reports. We validate this measure by establishing that search activity for sustainability reports is correlated with temporal patterns in firms’ supply of these reports. To frame the economic magnitude of this search behavior, we then show that the level of attention directed toward sustainability reports is very low compared to the level of attention directed toward financial and accounting information. Next, we examine two related research questions. First, we identify who pays attention to sustainability reports. We find, consistent with the environmental Kuznets curve, that attention toward sustainability reports is strongly associated with economic development. Consistent with findings in prior research that suggest citizens in stakeholder-oriented countries have stronger preferences for firms to act prosocially, we also find that search activity for sustainability reports relative to search activity for financial performance metrics is greater in civil-law countries than in common-law countries. Finally, we then explore the question of why individuals pay attention to sustainability reports and find evidence that suggests sustainability reports are used for two primary purposes: evaluating the societal impacts of firms’ actions; and, firm valuation