DOES ESG DISCLOSURE CREATE FINANCIAL VALUE? EVIDENCE FROM PAKISTAN'S NON-FINANCIAL FIRMS

Abstract

The aim of this study is to investigate the relationship between Environmental, Social and Governance (ESG) disclosure and financial performance of 35 non-financial firms listed on Pakistan Stock Exchange (PSX). The analysis is performed with the help of FY2024 data using Pearson correlation, Ordinary Least Square (OLS) regression, and independent sample t-test on a disclosure index composed of 35 items based on the Securities and Exchange Commission of Pakistan (SECP) Voluntary Disclosure Guidelines and the 2021 Global Reporting Initiative (GRI) Standards. Results indicate that the ESG disclosure score is positively and statistically significantly correlated with the three performance indicators analyzed namely Return on Assets, Return on Equity and Tobin's Q. The three ESG pillars are most closely linked to financial results, with governance disclosure having the greatest link. Overall, these patterns are consistent with stakeholder theory and imply that firms that provide ESG information in emerging-market context are more likely to achieve better financial performance. The paper contributes to a nascent research stream on ESG in South Asia, and has relevance for regulators, investors, and corporate managers as Pakistan transitions to the phased implementation of IFRS S1 and S2.