Environment-Social-Governance Disclosures nexus between Financial Performance: A Sustainable Value Chain Approach

Governments, institutions, and organisations are being persuaded by the UN Sustainable Development Goals (SDG) to include environmental-social-governance (ESG) measures in their disclosure systems and sustainable management practices. With the outbreak of the Covid-19 pandemic, institutional investors are shifting their focus from profit-making to sustainable and ethical investment. Investors are majorly focussing on ESG measures with financial incentives while making investment decisions. Empirical evidences indicate that firms disclosing ESG measures are likely to outperform others by reducing the risk and enhancing the economic performance, although the results may vary. ESG measures not only promote economic incentives but also encourage sustainable production through value accretive supply chain mechanism. The present study tries to explore the ESG disclosure-Corporate Financial Performance (CFP) nexus w.r.t the presence of sustainable value chains, considering the panel data of 1,170 firm-level observations from 2012 to 2020. In order to resolve endogeneity issue, we use Generalized Methods of Moments (GMM) and system GMM approach. The study also focuses on the presence of foreign ownership along with the environmental and social supply chain management practices in ESG–CFP nexus. The findings highlight ESG as an indicator of a sustainable manufacturing strategy and support the link between ESG and CFP.