Increasing demand for environmental disclosure by capital markets hasamplified discussions calling for mandatory environmental disclosure. Towardmandating, capabilities and shortcomings of current voluntary environmentalreporting must be clarified from an investor’s perspective. The authors carriedout extensive empirical research in Japan, one of the most advanced countriesin the world in terms of environmental reporting. Global information vendorsare currently practicing a promising approach that enables investors to utiliseenvironmental data disclosed voluntarily. Relying on their approach, the authorsdeveloped an environmental database that covers 185 companies in the NikkeiIndex. This paper uses the information in this database to discuss the capabilitiesand shortcomings of voluntary environmental disclosure. The databaseenables investors to undertake simple analysis, but blanks and discrepanciesin boundaries damage the comparability and reliability of the data. Thesefundamental shortcomings stem largely from the adverse incentive: the morea company is engaged in environmental reporting, the worse it could appearin the database we developed. In contrast to the fact that an “invisible hand”could increase the number of sustainability reports published voluntarily, theadverse incentive faced by companies indicates that policy-making in the area ofenvironmental disclosure may become more vital in the future
