The impact of environmental, social and governance (ESG) disclosures on corporate financial performance in the energy sector

Purpose Environmental, social and governance disclosures are becoming increasingly important in the energy sector, which is considered a sensitive sector due to its high environmental and social impacts. This study aims to investigate the impact of these disclosures on the corporate financial performance of global enterprises in the energy sector. Design/methodology/approach This study examines the 100 most prominent energy companies listed globally by market capitalization in 2022. The independent variable is the LSEG disclosure score (ESG Score), which rates the extent of environmental, social and governance disclosures. Return on assets (ROA) and return on equity (ROE), which measure corporate financial performance, are the dependent variables. Regression analysis analyzes the impact of environmental, social and governance disclosures on corporate financial performance. Findings The results show that there is an insignificant relationship between environmental, social and governance disclosures and corporate financial performance in the energy sector. The insignificant relationship is associated with the low disclosure performance of enterprises in the sector regarding their sustainability strategies, impacts and performance. When the relationship between environmental, social and governance disclosures and corporate financial performance is evaluated on individual dimensions, mixed results (negative, positive or insignificant) are obtained. There is a negative relationship between environmental disclosures and corporate financial performance, a positive relationship between social disclosures and corporate financial performance (ROA only), and an insignificant relationship between governance disclosures and corporate financial performance. Originality/value The study provides new evidence for the ongoing debate between environmental, social and governance disclosures and corporate financial performance through a global sample of energy businesses operating in different parts of the world. These businesses are expected to play a leading role in the functioning of the global economy through their sustainability strategies and practices.