Quality of Environmental Sustainability Reporting and Financial Performance: Evidence from Pakistan.

Abstract

The study establishes a comprehensive environmental sustainability index of Pakistani companies. The environmental performance index has been built on the indicators taken from Global Reporting Initiative (GRI). Moreover, the environmental performance indicators have been scored by applying the criteria of quality of disclosures. Panel data random effects and the Generalized Method of Moments (GMM) have been used to test the relationship between environmental performance and financial performance assessed through return on assets (ROA). It has been found that environmental performance is positively and significantly related to financial performance in both the random effects and GMM estimations. Furthermore, it has been found that firms in the sample do not disclose too much monetary and quantitative data on environmental indicators. The study relies on stakeholder and legitimacy theories, and it has been found that both theoretical perspectives are valid in the context of Pakistan. The study guides the regulatory authorities in enhancing environmental disclosure among companies.