Environmental, Social and Governance (ESG) Performance and Financial Outcomes in the Middle East and Africa (MEA) Region: A Novel Decision Support Framework

The global landscape of sustainability challenges has become increasingly complex, characterized by varying regulatory frameworks and market maturity across different nations. The financial significance of environmental, social, and governance (ESG) factors is influenced by industry and firm-specific attributes. Therefore, this study employs an integrated decision support framework that combines grey relational analysis (GRA) models including Deng’s GRA, absolute GRA, and a second synthetic grey relational analysis (SSGRA) with firm-level panel regressions to compare ESG and financial performance linkages across 11 Middle East and Africa (MEA) countries and industrial sectors. Furthermore, the study utilized a sensitivity analysis to check the robustness of SSGRG. Results indicate considerable variability in the relationships between ESG and financial performance across the region. The economies of the Gulf Cooperation Council (GCC) showed the most robust positive relationship between ESG factors and financial performance based on SSGRG, with Kuwait (0.82), Qatar (0.81), and Saudi Arabia (0.80) predominantly influenced by the social and governance dimensions. Conversely, a weak correlation was demonstrated in Egypt (0.54), Nigeria (0.53), and Kenya (0.56). Moreover, financials, communication services, and materials sectors exhibit the greatest integration of ESG factors into financial performance, with composite SSGRG values ranging from 0.75 to 0.78. In contrast, the information technology and energy sectors demonstrate weak association, with composite SSGRG values falling below 0.60. Furthermore, a conservative maximin analysis reveals that corporate governance in Kenya and environmental performance in Oman are identified as the weakest relationship at the country level, while governance in the information technology and energy sectors, environmental management in real estate, and social performance in consumer discretionary sectors are highlighted as weak connections. This study addresses a gap in the literature by developing a novel decision-support framework, providing fresh empirical evidence from emerging markets, and offering theoretical insights into the into influence of stakeholder and institutional factors on ESG value creation. This study provides implications for investors, corporate managers, and policymakers on sustainable finance in emerging markets and presents a decision-making framework that emphasizes ESG initiatives to enhance financial performance.