Sustainability Reporting on Financial Performance Among Listed Firms in Nairobi Security Exchange, Kenya

Abstract

This study empirically investigates the effect of environmental, social, and governance disclosures on firm financial performance among listed firms observed over multiple years. Using a balanced panel of 468 firm-year observations from 39 firms, the study applies a fixed-effects regression model to control for unobserved, time-invariant firm characteristics that may jointly influence firm performance and disclosure behavior. ESG performance is peroxide using an ESG reporting index based on Global Reporting Initiative disclosure dimensions, while financial performance is measured using return on assets. Firm age and firm leverage are included as control variables to account for lifecycle effects and financing structure differences. The regression results indicate that environmental disclosure has a negative and statistically significant relationship with firm performance, suggesting that increased environmental reporting is associated with lower contemporaneous profitability, potentially reflecting short-run compliance, implementation, or reporting costs. Social disclosure is also negative and significant, implying that greater social transparency is linked to a modest reduction in short-term performance within firms over time. In contrast, governance disclosure is positive and statistically significant, indicating that improved governance transparency is associated with better firm performance, consistent with stronger oversight and accountability mechanisms enhancing efficiency and investor confidence. The findings imply that ESG pillars affect performance differently and highlight the central role of governance transparency for value creation.

Key words: ESG disclosure, environmental disclosure, social disclosure, governance disclosure, firm performance, return on assets, firm age, leverage, fixed effects model, GRI.

DOI: 10.7176/RJFA/17-1-03

Publication date: January 30th 2026