Can Financial Literacy Enhance ESG Disclosures?

Using an international sample of firms and two country‐level measures of financial literacy, we find robust evidence of a positive relation between financial literacy and firms' Environmental, Social and Governance (ESG) disclosures. In cross‐sectional analyses, we find that the effect of financial literacy in enhancing ESG disclosures is more prominent in poorer information environments, weaker legal institutions and weaker ESG reporting environments. Lastly, we find that financial literacy also enhances ESG performance. Our study contributes to and extends the literature by providing strong evidence that citizens' financial literacy enhances firms' ESG disclosure and the associated ESG performance.