Abstract
This study investigates the relationship between corporate environmental, social and governance (ESG) performance disclosure and profitability, highlighting the significant differences between the financial and non-financial sectors. This study uses an extensive Australian sample during the 2007–2017 period from Bloomberg’s database. A panel regression model is used to evaluate the association between the corporate ESG performance disclosure and profitability to conduct an industry analysis. The robustness of the results is rigorously assessed using several robustness tests to evaluate the methodological, sample selection, endogeneity and causality issues associated with corporate ESG performance disclosure. This study finds that higher corporate ESG performance disclosure is associated with higher company profitability. However, the industry comparison analysis shows significant differences between financial and non-financial industries. This study finds that for companies operating in non-financial sectors, except for corporate governance, there is no significant association between corporate environmental and social elements and a company’s profitability. Therefore, this study has implications for regulators and corporations. The empirical results of this study show that improving corporate ESG performance disclosure is beneficial to shareholders and other stakeholders in the long run. However, the enforcement of environmentally and socially responsible conduct improves profitability only in the financial industry. This study recommends that the regulators create a conducive institutional environment to promote ESG performance in the financial industry. Therefore, it enhances ESG awareness for the borrowers as well as helps economic development.
Highlights
During the last decade and since the 2008–2009 period of financial turmoil, where the main driver of the financial crisis initiated from the irresponsible behaviour of the financial sector, the pursuit of environmental, social and governance (ESG) performance disclosure has increased globally [1,2]
This study aims to answer the following research questions: Research question 1 (RQ1): how much is corporate ESG performance disclosure associated with financial performance?
Following the viewpoint of stakeholder theory that being socially and environmentally responsible leads to higher stakeholder support, Wu and Shen [42] and Maqbool and Zameer [43] find a positive relationship between corporate ESG performance disclosure and financial performance in the financial sector
Summary
During the last decade and since the 2008–2009 period of financial turmoil, where the main driver of the financial crisis initiated from the irresponsible behaviour of the financial sector, the pursuit of environmental, social and governance (ESG) performance disclosure has increased globally [1,2]. Few studies have investigated the implications of corporate ESG performance disclosure in the financial sector compared with other industries [4,14]. Improving ESG performance in the financial industry plays a pivotal role in economic development and results in two positive spillovers [15,19]. Investigating industry comparisons of corporate ESG performance disclosure across different industries may help managers and policymakers to incorporate best practices towards promoting sustainable businesses, contributing to economic development [14,15,19]. The results of this study help market participants and analysts better understand the economic implications of corporate ESG performance disclosure, for financial companies. This study recommends that regulators support the financial industry with active ESG performance and allocate resources to corporations with improved environmental and social performance.
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