The Role of Sustainability Reporting in Driving Financial Perfomance: Evidence from ESG Star Listed Companies

Abstract

This study aims to assess the effect of Environmental, Social, and Governance (ESG) disclosure on firms’ financial results, specifically their Return on Assets (ROA) and evaluate the effect of external firm size and age. This study employs a quantitative method, and the population consists of all firms that have been listed on the ESG Star Listed Companies for the years 2020 to 2024. Using purposive sampling, 8 firms that have been consistently listed on the index and have complete sustainability and financial reports were chosen for the study. Data on ESG dimensions were gathered using content analysis of the firms published materials based on the Global Reporting Initiative (GRI) guidelines, while the data on the firms ROA and firm size and age were gathered from the annual reports of the firms. This study employed panel data regression analysis using a fixed effect model and Moderated Regression Analysis (MRA) for hypothesis testing. The results of the study show that none of the ESG dimensions, that is, of the Environmental, Social, and Governance factors, have any statistically significant effect on the firms\' ROA. In addition to that, the results show that the age and size of the firm have no moderating effect on the relationship that exists between ESG and the ROA of the firms. The evidence shows that relatively speaking, ESG practices are more about establishing legitimacy and garnering reputation than they are about short term profitability, and we therefore conclude that the concerned companies need to weave ESG principles more deeply into their strategies to create value in the long term.