We study how firms with poor environmental performance manage the tension between the pressure to disclose environmental information and the desire to avoid negative consequences. While prior literature suggests that impression management strategies such as selective disclosure may be useful, it has paid little attention to the reference point used in making selective disclosure and its implications for drawing inferences about firm behavior. We suggest that poor environmental performers use financial materiality (as relevant to the firm) as a reference point in making environmental disclosures to mitigate potential negative financial impacts on the firm given their poor environmental conduct. We find strong evidence consistent with this argument. Poor environmental performers selectively disclose financially material environmental information compared to superior counterparts, while attempting to bridge the gap with financially immaterial environmental information. In particular, poor environmental performers tend to increase the disclosure of general commitment-oriented information that lacks a clear link to specific environmental outcomes but over which they have greater control. We further find that these trends are exacerbated by the issuance of SASB materiality standards, and over time, and are mitigated by direct government targeting and media coverage of environmental incidents. We discuss contributions to research on the interface between sustainability, information disclosure, and impression management.
