ESG disclosure, ranking and firm’s characteristics: evidence from Pakistan

Purpose We aim to construct the environmental, social and governance (ESG) ranking based on voluntary disclosures in an emerging market where ESG ratings are unavailable and investigate the factors influencing a firm’s ESG ranking. Design/methodology/approach We analyzed ESG disclosures on corporate webpages and annual reports for firms listed on the Pakistan Stock Exchange (PSX) and ranked the firms on ESG dimensions. Further, we examined the impact of the firm’s financial characteristics on ESG performance using panel regressions for 2017–2022. Findings Firms’ disclosures were strongest in the governance dimension but weaker in environmental and social dimensions. Our ESG rankings show banks as the highest and refineries as the lowest-ranked sectors. Regression analysis indicates that firms with strong financial performance and low leverage performed better across ESG dimensions. While the overall impact of ESG rankings on firm performance is unclear, stronger environmental rankings seem to offer a competitive advantage. Practical implications As global capital markets move towards sustainable investing, ESG rankings can help Pakistan to attract foreign inflows. Further, findings on poor disclosures on environmental and social dimensions highlight the need for a standardized ESG reporting framework to make firms’ sustainability efforts more transparent to stakeholders. Social implications Measurement and availability of ESG rankings will increase ESG awareness in investors and will encourage companies to allocate resources towards sustainable business practices. Originality/value This research is the first attempt to gauge the ESG performance of PSX-listed firms and identify the firm characteristics indicative of ESG performance in an emerging market context.