The Incidence of Mandatory ESG Reporting on Corporate Performance

Abstract

This thesis explores the relationship between sustainability reporting and corporate performance, focusing on how national sustainability reporting laws (SRLs) influence this dynamic. In response to the growing global emphasis on Environmental, Social, and Governance (ESG) factors, the study addresses the ongoing debate regarding the impact of ESG disclosures on financial outcomes. Through an extensive analysis of data from 4,068 firms across 64 countries between 2014 and 2023, the research examines the effects of mandatory ESG reporting on financial, operational, and market performance.The study adopts a positivist philosophy and a deductive approach, utilizing multiple regression models to investigate the correlation between ESG scores and key performance indicators (KPIs) such as Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q (TQ). A key aspect of the analysis is the exploration of how mandatory ESG reporting moderates these relationships, providing insights into the role of regulatory frameworks in shaping corporate performance.Key findings reveal that higher ESG scores, particularly when combined with comprehensive reporting, are positively associated with improved financial metrics. Firms with strong ESG practices demonstrate better operational efficiency, higher equity returns, and increased market valuations. Moreover, the study finds that mandatory ESG reporting significantly amplifies these positive effects, suggesting that regulatory mandates enhance corporate transparency and accountability, leading to better financial outcomes.The research further shows that the benefits of ESG reporting are more pronounced in countries with stringent regulatory requirements, highlighting the crucial role of national laws in fostering sustainable and financially resilient business practices. These findings offer valuable insights for policymakers, business leaders, and investors, underscoring the importance of robust sustainability reporting standards in driving long-term corporate success.In conclusion, this thesis provides compelling evidence that sustainability reporting, particularly when mandated by law, is a critical driver of corporate performance. The results support the integration of ESG factors into core business strategies, advocating for stronger regulatory frameworks to ensure transparency, accountability, and sustainable growth in the global business environment.