Financial Market Responses to Mandatory Climate Disclosures: Evidence from the European Union and China

The present research examines the impact of the European Unions mandatory climate disclosure policy, implemented in January 2024 under the Corporate Sustainability Reporting Directive, on financial markets. This paper conducts a comparative analysis between the European Union and China to determine the impact of such disclosure requirements on profitability, stability, and risk-adjusted performance. By employing a difference-in-differences methodology with panel data spanning from July 2022 to July 2025, the study examines the policy impact on excess returns, volatility, and Sharpe ratios. In both regions, there are similar volatility levels, with China exhibiting higher return variability and stronger risk-adjusted undertaking. Following the introduction of the disclosure mandate, the European Union has experienced a significant decrease in volatility, as increased transparency has enhanced market stability. Contrarily, there is no statistically significant spillover effect in China. In both markets, excess returns and Sharpe ratios remain broadly stable. This paper concludes that mandatory disclosure policies strengthen market stability in developed regions and imply potential growth prospects for emerging markets through similar reforms. This paper advances the field of sustainable finance by presenting evidence on the effects of mandatory climate disclosure.