Assessing the Influence of ESG Practices on Firm Performance: Evidence From Listed Firms on the Lusaka Securities Exchange

The purpose of this study was to empirically assess the influence of Environmental, Social, and Governance (ESG) practices on the performance of firms listed on the Lusaka Securities Exchange (LuSE). The independent variables were environmental, social, and governance practices, while firm performance was measured using market performance (Tobin’s Q), financial performance (Return on Equity and Price-to-Earnings Ratio), and operational performance (Return on Assets). Firm size, industry sector, and financial leverage were included as control variables. The study employed a quantitative research approach using secondary data from 12 LuSE-listed firms with complete audited annual financial statements from 2019 to 2023, generating 60 firm-year observations. Morgan Stanley Capital International (MSCI) Industry Materiality Map was used to derive the ESG scores and ratings, with EViews 12 software used for data analysis and hypothesis testing. The findings obtained from the empirical results show that overall ESG performance has a positive and statistically significant influence across financial, operational, and market performance measures. Variations were noted when measured individually, with environmental practices having mixed effects on financial performance, a negative influence on operational performance, and a positive effect on market performance, while social practices showed a neutral relationship with financial performance and positive associations with operational and market performance. Governance practices showed a positive influence across all firm performance measures. The study offers practical insights on the influence of ESG practices on the performance of LUSE-listed firms and demonstrates the application of the MSCI Materiality in emerging capital markets.