ESG Disclosure Ratings and Corporate Financial Performance: A Comparative Analysis of SADC-Listed Firms (2018–2024)
DOI:
https://doi.org/10.51137/wrp.ijsbe.646Keywords:
Corporate Financial Performance, ESG Disclosures, Legitimacy Theory, SADC Stock Exchanges, Stakeholder TheoryAbstract
The study examines how Environmental Social and Governance ESG disclosure ratings relate to the financial performance of companies listed on ten Southern African Development Community stock exchanges between 2018 and 2024. The study uses a mixed-methods research design which combines annual report content analysis with statistical assessment of ESG metrics that match FTSE4Good standards to evaluate 99 companies from different economic and regulatory environments. The study uses Return on Assets ROA and Return on Equity ROE and Net Profit Margin as indicators of financial performance. The analysis shows significant regional differences in ESG disclosure quality because Johannesburg Stock Exchange-listed companies provide better reporting which results in an average ESG score of 13.60 while Dar es Salaam Stock Exchange reports lower ESG scores of 10.65. The strongest pillar of the study shows governance as the strongest pillar with an average score of 4.38 while environmental disclosure shows the lowest score with an average of 3.93. The statistical results show a strong positive relationship between governance scores and financial performance because top-quartile ESG firms achieved 18.2% average ROA while lower-ranked ESG firms reached 9.7% ROA. The study recommends that SADC markets should implement standardized ESG frameworks which require different levels of reporting and stricter regulatory enforcement to achieve sustainable corporate operations.
References
Biju, A. (2025). ESG–firm performance nexus: Evidence from an emerging economy. Business Strategy and the Environment, 34(2), 112–130. https://doi.org/10.1002/bse.4152
Burlea-Schiopoiu, A., & Popa, I. (2013). Legitimacy theory. In Encyclopedia of Corporate Social Responsibility (pp. 1579–1584). Springer. https://doi.org/10.1007/978-3-642-28036-8_471
DasGupta, R., & Roy, A. (2023). Firm environmental, social, governance and financial performance relationship contradictions: Insights from institutional environment mediation. Technological Forecasting and Social Change, 189, Article 122353. https://doi.org/10.1016/j.techfore.2022.122353
de Klerk, M., & de Villiers, C. (2012). The value relevance of corporate responsibility reporting: South African evidence. Meditari Accountancy Research, 20(1), 21–38. https://doi.org/10.1108/10222521211234200
Deegan, C. (2019). Legitimacy theory: Insights from the past and opportunities for the future. Accounting, Auditing & Accountability Journal, 32(8), 2307–2339. https://doi.org/10.1108/AAAJ-08-2018-3639
Dowling, J., & Pfeffer, J. (1975). Organizational legitimacy: Social values and organizational behavior. Pacific Sociological Review, 18(1), 122–136. https://doi.org/10.2307/1388226
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835–2857. https://doi.org/10.1287/mnsc.2014.1984
Fernando, S., & Lawrence, S. (2014). A theoretical framework for CSR practices: Integrating legitimacy theory, stakeholder theory and institutional theory. Journal of Theoretical Accounting Research, 10(1), 149–178.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.
Freeman, R. E., Phillips, R., & Sisodia, R. (2020). Tensions in stakeholder theory. Business & Society, 59(2), 213–231. https://doi.org/10.1177/0007650318773750
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917
FTSE Russell. (2024). FTSE Russell ESG Data Model Methodology. London Stock Exchange Group. Available at: https://www.lseg.com/en/ftse-russell
Githaiga, P. N., & Kosgei, J. K. (2023). Board characteristics and ESG disclosure in sub-Saharan Africa. Corporate Governance: The International Journal of Business in Society, 23(7), 1528–1545. https://doi.org/10.1108/CG-05-2022-0223
Gladysek, O., & Chipeta, C. (2012). The impact of socially responsible investment index constituent announcements on JSE share prices. South African Journal of Economic and Management Sciences, 15(4), 429–439. https://doi.org/10.4102/sajems.v15i4.278
Global Reporting Initiative (GRI). (2021). GRI Standards. https://www.globalreporting.org/standards
IFRS Foundation. (2023). IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. IFRS Foundation.. Available at: https://www.ifrs.org
Institute of Directors in Southern Africa. (2016). King IV Report on Corporate Governance for South Africa 2016. IoDSA.. Available at: https://www.iodsa.co.za
Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. The Accounting Review, 91(6), 1697–1724. https://doi.org/10.2308/accr-51383
Kogi, S. K., Kristanto, A. B., & Cao, J. (2025). A systematic literature review of environmental, social and governance (ESG) research in Africa. Meditari Accountancy Research, 33(7), 199–245. https://doi.org/10.1108/MEDAR-12-2023-2314
Laczniak, G. R., & Murphy, P. E. (2012). Stakeholder theory and marketing: Moving from a firm-centric to a societal perspective. Journal of Public Policy & Marketing, 31(2), 284–292. https://doi.org/10.1509/jppm.10.106
Matemane, R., Wentzel, R., & Moloi, T. (2024). ESG disclosure and firm value: Evidence from South African listed firms. International Journal of Disclosure and Governance, 21, 325–340. https://doi.org/10.1057/s41310-023-00203-8
MSCI ESG Research LLC. (2024). MSCI ESG Ratings Methodology.. Available at: https://www.msci.com/our-solutions/esg-investing/esg-ratings
O'Donovan, G. (2002). Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, 15(3), 344–371. https://doi.org/10.1108/09513570210435870
Oncioiu, I., Popescu, D.-M., Aviana, A. E., Șerban, A., Rotaru, F., Petrescu, M., & Marin-Pantelescu, A. (2020). The role of environmental, social, and governance disclosure in financial transparency. Sustainability, 12(17), 6757. https://doi.org/10.3390/su12176757
Rahat, B., & Nguyen, P. (2024). The impact of ESG profile on firm's valuation in emerging markets. International Review of Financial Analysis, 95, Article 103404. https://doi.org/10.1016/j.irfa.2024.103404
Sigmund, G. (2020). Social Research Methods. 3rd Edition. SAGE Publications Ltd
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610. https://doi.org/10.5465/amr.1995.9508080331
Sustainalytics. (n.d.). ESG Risk Ratings Methodology. Morningstar, Inc.. Available at: https://www.sustainalytics.com/esg-ratings
Zyznarska-Dworczak, B. (2018). Legitimacy theory in management accounting research. Journal of Management and Business Administration. Central Europe, 26(2), 71–88. https://doi.org/10.7206/jmba.ce.2450-7814.231
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Chakanetsa P. Korera, Elia Madondo (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
