Environmental Social and Governance Impetus and Firm Performance: Assessing the Role of Sustainability on Corporate Success

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Published Sep 1, 2024
https://doi.org/10.61506/02.00362
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Vol. 10 No. 3 (2024): Journal of Policy Research

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Syed Usman Ali Gillani
Lecturer, Department of Conventional & Islamic Banking, Institute of Business Management & Administrative Sciences, The Islamia University of Bahawalpur
Prof. Dr. Areeba Khan
Lecturer, Department of Conventional & Islamic Banking, Institute of Business Management & Administrative Sciences, The Islamia University of Bahawalpur

Abstract

This study investigates the level and impact of Environmental, Social, and Governance (ESG) reporting among non-financial firms listed on the Pakistan Stock Exchange (PSX), aiming to draw conclusions on ESG reporting levels, its impact on financial performance, and the mediating role of investment rating. The findings indicate that while ESG reporting in Pakistan is increasing, compliance is below 50% for most indicators, with social sustainability averaging 53.36%. Environmental sustainability reporting is associated with improved Return on Assets (ROA) and Tobin's Q, highlighting better asset utilization and market valuation for firms that prioritize environmental disclosures. Similarly, social and governance sustainability reporting positively influence financial performance by enhancing employee productivity, customer loyalty, decision-making, and risk management. A composite ESG index demonstrates a holistic approach to sustainability, benefiting financial performance by improving stakeholder relations and capitalizing on sustainable opportunities.


Investment rating mediates the relationship between ESG reporting and financial performance, suggesting that higher ESG disclosures lead to better investment ratings and, consequently, improved financial outcomes. This study aligns with existing literature from developed countries and extends the understanding of ESG reporting's benefits to a developing country context, specifically Pakistan. While ESG reporting is a well-explored area in developed countries, this study adds unique value by concentrating on non-financial firms listed on the Pakistan Stock Exchange (PSX), contributing to a relatively under-researched context in a developing country. Exploration of the mediating role of investment rating is a notable original contribution, revealing how higher ESG disclosures not only directly impact financial outcomes but also lead to improved investment ratings, which in turn enhance financial performance.

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How to Cite
[1]
Gillani, S.U.A. and Khan, P.D.A. 2024. Environmental Social and Governance Impetus and Firm Performance: Assessing the Role of Sustainability on Corporate Success. Journal of Policy Research. 10, 3 (Sep. 2024), 434–446. DOI:https://doi.org/10.61506/02.00362.
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