Unveiling corporate transparency: the determinants of ESG disclosure in emerging markets

Abstract

This study investigates the determinants of Environmental, Social, and Governance (ESG) disclosure in firms across emerging counrtries, aiming to explore how financial performance, leverage, and institutional factors impact the level of ESG transparency. The research employs panel-autoregressive models (AR (1)) with fixed effects (FE) and robust-clustered standard errors to address heteroscedasticity and endogeneity. In addition, the system’s generalized method of moments (GMM) is applied to handle potential endogeneity issues in the dynamic panel data models. The study finds a significant positive relationship between lagged ESG disclosures and current disclosures, confirming the persistence of ESG practices. While debtto- asset ratio and profitability indicators (ROA, ROE) had weak or non-significant effects on ESG disclosure, the Corruption Perception Index (CPI) was positively correlated with ESG reporting, indicating that better governance and transparency at the country level drive corporate ESG disclosure. The findings suggest that policymakers should strengthen regulatory frameworks to mandate ESG reporting, particularly in emerging markets. Furthermore financial institutions can incentivise ESG practices by linking financing terms to sustainability performance. Companies should prioritise long-term value creation through enhanced transparency in their ESG activities. This research contributes to the growing literature on ESG disclosure by examining firm-level data across the LATAM and EMEA regions. It provides novel insights into the institutional and financial drivers of corporate transparency on ESG issues, highlighting the importance of regulatory pressure and economic health in promoting sustainable corporate behaviour.