ENVIRONMENTAL DISCLOSURE AND FINANCIAL PERFORMANCE: EVIDENCE FROM ENVIRONMENTALLY SENSITIVE SECTORS ACROSS GLOBAL MARKETS

Abstract

This study examines how environmental disclosure influences financial performance in environmentally sensitive industries such as energy, mining, manufacturing, and chemicals. Using a purposive sample of 20 firms from North America, Europe, and emerging economies, the analysis covers the period 2010–2024 and draws on ESG data from Bloomberg, the Global Reporting Initiative (GRI), and the Carbon Disclosure Project (CDP). The research adopts a positivistic approach with deductive reasoning, applying regression and generalised method of moments models to account for endogeneity and omitted variable bias. Data on environmental disclosure were obtained from Bloomberg ESG, the Global Reporting Initiative, and the Carbon Disclosure Project, while financial performance indicators, including return on assets, return on equity, and Tobin Q, were sourced from Bloomberg, Compustat, and Thomson Reuters. The results show that higher environmental disclosure scores and explicit environmental goals are positively and statistically significantly associated with return on assets, return on equity, and Tobin’s Q, supporting stakeholder and legitimacy theory perspectives. In contrast, greenhouse gas emissions and energy use disclosures exhibit negative relationships with performance, reflecting the financial costs of inefficiencies, regulatory compliance, and reputational risks. Disclosures related to water use and waste management show no consistent significant effects. The significant negative association between fines and performance highlights the financial risks of non-compliance. The findings suggest that proactive, strategic environmental disclosures can enhance profitability, while reactive or compliance-driven disclosures may impose costs. The study provides practical implications for managers, investors, and policymakers, emphasising the integration of environmental disclosure into corporate governance through standardised frameworks (GRI, TCFD), third-party assurance, and linking sustainability targets to executive incentives.

Keywords: Environmental Disclosure, Financial Performance, Sustainability Reporting, Corporate Transparency