Beyond compliance: evaluating the role of environmental, social and governance disclosures in enhancing firm value and performance

Abstract

The growing emphasis on sustainability has underscored the importance of environmental, social, and governance (ESG) factors in evaluating corporate performance. While research explores the connection between ESG scores and financial outcomes, the role of ESG disclosures in mediating this relationship remains unclear. This study bridges this gap by systematically reviewing the impact of ESG disclosures on firm value and profitability across various industries. We employed a rigorous selection process based on the PRISMA framework, searching Scopus and Web of Science databases for relevant studies. Ultimately, 52 studies were analyzed to determine the relationship between ESG disclosures and financial performance. The results reveal a nuanced dynamic. Industries like food and retail showed positive correlations between strong ESG disclosures and improved financial performance. The utility sector displayed high accounting performance linked to social metrics, with less focus on environmental disclosures. Interestingly, the connection between ESG and financial performance in developing economies was either negative or insignificant. The agriculture sector presented a unique case where governance disclosures specifically enhanced market performance. This multi-industry exploration underscores the need to move beyond a one-size-fits-all approach when analyzing ESG performance. We recommend policy measures that consider specific industry characteristics and contextual factors to enhance the quality and transparency of ESG disclosures.