ESG Beyond Disclosure: The Signalling Boundary and the Cumulative Development of Sustainable Finance Theory

Abstract

ESG disclosure has expanded from voluntary narratives into mandatory, assurance-bearing regimes, but disclosure volume does not constitute investor-relevant information — a tension this paper identifies as the ESG Disclosure Paradox. We introduce the ESG Signalling Boundary, a diagnostic framework grounded in signalling theory and cheap-talk models of strategic communication, built on three principles — signal cost and verifiability, receiver decodability, and feedback and accountability combined by a weakest-link rule: informativeness is set by a disclosure's least-satisfied principle, not their sum. The rule yields falsifiable predictions, including an inverted-U relationship between verification cost and informativeness. An illustration from India's mandatory BRSR Core assurance cycle shows the three principles diverging within one disclosure population; illustrations from generative AI and retail-investor markets show identical disclosures on opposite sides of the boundary depending on the receiver. The framework shifts evaluation from disclosure volume to more credibility, providing a basis for cumulative sustainable finance theory.