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Sustainability reporting has been widely adopted by firms worldwide given stakeholders’ need for more transparency on environmental, social and governance (ESG) issues. This study aims to investigate the relationship between ESG and bank’s operational (return on assets [ROA]), financial (return on equity [ROE]) and market performance (Tobin’s Q) in a group of emerging countries in the Middle East and North Africa (MENA) region.

This study examines 59 banks listed on the stock exchanges of MENA countries over a period of 10 years (2008-2017). Only conventional banks with all data for at least two years are included in the sample. The core independent variable is ESG scores, and the dependent variables are ROA, ROE and Tobin’s Q. This study uses bank- and country-specific control variables to measure the relationship between sustainability reporting and bank’s performance.

The findings from the empirical results demonstrate a significant positive impact of ESG on performance and economic benefits to shareholders. However, the relationship between ESG disclosures varies individually; unlike the majority of published research, the authors found that social performance plays a negative role in determining bank’s profitability and value. Furthermore, the authors present evidence in support of the impact of bank- and country-specific factors in determining bank’s performance.

To the best of the authors’ knowledge, this is the first study to investigate the impact of sustainability reporting on banks’ performance in the MENA region. It provides evidence that questions the positive relationship between sustainability reporting and financial measures of performance.

This study investigates the association between corporate sustainability disclosures and firm performance and value.

This study collected data from 694 manufacturing companies operating in 34 countries between 2007 and 2019, yielding 6,181 firm-year observations. This study employs a dual-model framework to analyze the influence of environmental, social, and governance (ESG) performance on return on assets (ROA), return on equity (ROE), and Tobin's Q ratio. Two sets of control variables, firm- and country-specific, were incorporated to account for potential confounding factors. To validate the robustness of the findings, we utilized a battery of econometric techniques, including traditional ordinary least squares (OLS), firm-fixed effects, quantile regression, and instrumental variables-generalized method of moments (IV-GMM), applied to both the pooled and firm-fixed effects models.

The findings are contradictory: there is a negative relationship between sustainability disclosure and operating performance and return on equity, but a positive relationship between sustainability disclosure and firm value. The negative correlation is consistent with agency theory and the positive correlation is consistent with the legitimacy and shareholder theories. These results are robust to performance measures and estimation methods.

Short-term profit shouldn't deter sustainability. It boosts legitimacy, reputation, efficiency, and long-term market value. Investors must look beyond profitability ratios, embracing ESG metrics. Firms should see sustainability as strategic investment, not cost. Patience pays off: long-term gains await. Regulation can guide balanced growth, prioritizing both shareholders and societal well-being.

This study is the first to adopt a firm’s fixed-effect quantile regression, which provides deep insights into the role of sustainability disclosure in meeting stakeholders’ expectations.