Value Creation Through Environmental, Social, and Governance (ESG) Disclosures

This study investigates the impact of environmental, social, and governance (ESG) disclosure on value creation in a balanced panel of 100 non-financial Sharia-compliant firms listed on the Saudi Stock Exchange over the period 2014–2023. The analysis employs a combination of econometric techniques, including fixed effects models with Driscoll–Kraay standard errors, Pooled Ordinary Least Squares (POLS) with Driscoll–Kraay standard errors and industry and year dummies, and two-step system generalized method of moments (GMM) estimation to address potential endogeneity and omitted variable bias. Value creation is measured using Tobin’s Q (TBQ), Return on Assets (ROA), and Return on Equity (ROE). The models also control for firm-specific variables such as firm size, leverage, asset tangibility, firm age, growth opportunities, and market capitalization. The findings reveal that ESG disclosure has a positive and statistically significant effect on firm value across all three performance measures. Furthermore, firm size significantly moderates this relationship, with larger Sharia-compliant firms experiencing greater value gains from ESG practices. These results align with agency, stakeholder, and signaling theories, emphasizing the role of ESG in enhancing transparency, reducing information asymmetry, and strengthening stakeholder trust. The study provides empirical evidence relevant to policymakers, investors, and firms striving to achieve Saudi Arabia’s Vision 2030 sustainability goals.