We examine how ESG disclosure mandates introduced in the headquarters countries of business groups affect the ESG performance of both parent companies and their subsidiaries. Leveraging the staggered introduction of these mandates across numerous countries worldwide, we find that, following mandate adoption, parent companies improve their own ESG performance - but do so, in part, by shifting irresponsible ESG activities to their subsidiaries. Subsidiaries of parents subject to disclosure mandates experience a significant increase in the occurrence and frequency of ESG incidents, particularly in countries where weaker institutions and social norms make stakeholder monitoring more challenging and where parent companies are less likely to be liable for subsidiary torts. We further show that business groups respond to ESG disclosure mandates along both the intensive margin - via increased asset and employee utilization in subsidiaries - and the extensive margin, through divestitures of non-synergistic subsidiaries that pose excessive ESG risks. Collectively, our findings highlight the consequences of uneven ESG disclosure regulation and underscore the need for cross-country coordination in regulatory design.
