Environmental Disclosure Tone and Analyst Forecast Behaviour: A Study of the EU Nonfinancial Reporting Directive

Mumtaheena Anwar, Elisabeth Sinnewe and Annette Quayle

Accounting and Finance, 2025, vol. 65, issue 4, 3574-3604

Abstract: We investigate how the regulation of environmental disclosures affects the corporate environmental disclosure tone (EDT) and analyst forecast behaviour (AFB) following the implementation of the European Union Nonfinancial Reporting Directive. Based on hand‐collected data from environmentally sensitive European firms, we find that the Directive encourages firms to adopt a cautious EDT. Our findings suggest that analysts are sensitive to EDT in the regulated period, where firms' optimistic and uncertain disclosures may contribute to a greater forecast error and dispersion. We show that the Directive encourages an improved reporting environment by shifting firms' environmental reporting and facilitating improved firm valuation.

Date: 2025
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