Financial Determinants of ESG Disclosure Quality

Key Points

ESG disclosure quality is positively influenced by profitability and firm size, indicating stronger financial health leads to better reporting.
Panel data regression analysis covering 350 European firms from 2015 to 2024 highlights liquidity as a key factor contributing to enhanced ESG disclosures.
Market valuation also positively affects ESG disclosure quality, emphasizing the importance of firms' market performance in shaping their reporting practices.
Despite its negative influence, leverage is identified as a factor that detracts from overall ESG reporting quality, indicating financial constraints.

Abstract

Environmental, Social, and Governance (ESG) disclosure quality is increasingly critical for corporate transparency and investor decision-making. This study investigates the financial determinants of ESG disclosure quality in 350 European publicly listed firms from 2015 to 2024. Using panel data regression analysis, we find that profitability, firm size, liquidity, and market valuation positively influence ESG disclosure quality, while leverage has a negative effect. The results highlight that financial health and strategic signaling play central roles in shaping ESG reporting practices. These findings provide insights for managers, investors, and policymakers seeking to enhance corporate sustainability reporting.

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