THE IMPACT OF ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) DISCLOSURES ON FINANCIAL PERFORMANCE OF LISTED COMPANIES: A STUDY OF UNITED ARAB EMIRATES (UAE)

Abstract

In the last couple of decades, Environmental, Social, and Governance (ESG) has emerged as one of the most popular non-financial performance matrix for various governments, companies, investors, and other stakeholders around the world. Most of the stakeholders have one common question- do companies’ ESG practices and their disclosures have any impact on their performance specially in the context of financial wellbeing. In the same context, this paper attempts to evaluate the ESG disclosures and their impact on financial performance of listed companies in UAE, a prominently progressive economy in MENA region.

To evaluate the relationship, researcher has taken a sample of 51 listed companies on Abu Dhabi Securities Exchange over the period form 2020-2023. As the listed companies started disclosing key ESG parameters majorly in 2020 when UAE Securities and Commodities Authority (SCA) launched Corporate Governance Code for listed companies and instructed them to publish an annual sustainability report.

The Empirical results of this research indicate that the Environment and Social disclosures by UAE listed companies have a positive and significant impact on their financial performance measured mainly in the form of return on assets and returns on equity. Whereas Governance disclosure is found to be negatively but insignificantly associated with companies’ financial performance. Therefore, we can infer that in an emerging and progressive country like UAE, ESG disclosure or reporting can help the companies to improve their financial performances.