Navigating Financial Distress Through ESG Disclosures

This study aims to examine the effect of Environmental, Social, and Governance Disclosures (ESGD) on financial distress, with profitability (return on asset [ROA]) as a moderating variable. Despite growing global attention to ESG practices, limited empirical evidence exists on how ESGD influences financial distress in emerging economies, particularly within sector-specific contexts. A total of 156 firm-year panel data of the pharmaceutical and chemical industry of Bangladesh, spanning the period between 2019 and 2024, are analyzed for this purpose. The study adopts a quantitative research design based on secondary data. Financial distress is determined through Altman’s Z-score, and profitability is measured through ROA. The results demonstrate that ESGD has a positive and statistically significant effect on Z-score, leading to lower financial distress. Furthermore, profitability significantly moderates the ESGD–financial distress relationship, suggesting that ESGD more effectively reduces financial distress among profitable firms. This study calls for managerial and policy-level implications regarding the integration of ESGD into core operational, strategic, and risk management practices. Alignment of ESG performance with financial performance, with standardized reporting frameworks, will enhance corporate resilience.