No. 220: Beyond Disclosure: How Firms Adjust Organizational Structure in Response to the Sustainability Reporting Regulation

This study examines how firms adjust their organizational structure in response to the European Union’s Non-Financial Reporting Directive (NFRD). We distinguish between two structural responses: specialization, assigning sustainability responsibilities to dedicated roles or units, and generalization, embedding them within existing managerial functions. Using survey data from the Carbon Disclosure Project and a difference-indifferences design with matched U.S. control firms, we document a general time trend toward specialization for both U.S. and EU firms. However, this trend is weaker for EU firms, which more frequently generalize their sustainability responsibilities post-NFRD. Cross-sectional analyses suggest that firms with low reporting quality in the pre-regulation period are more likely to generalize. Investigating the performance effects of organizational structure adjustments, we find that generalization is associated with improvements in sustainability performance but declines in financial performance. The findings contribute to the literature on the real effects of sustainability reporting regulations by emphasizing the heterogeneity in organizational responses.