The Impact of Sustainability Reporting on Firm Performance : Empirical Evidence from Finland

Abstract

Corporate Social Responsibility (CSR) disclosure has emerged as a crucial component of modern corporate communication, due to the growing expectations that firms exhibit accountability in environmental, social, and governance (ESG) domains. However, the academic literature regarding the relationship between CSR disclosure and firm performance presents mixed and often contradictory evidence, showing positive, negative, or statistically insignificant effects. This study investigates this ongoing discussion by examining publicly listed companies in Finland, a renowned sustainability leader in northern region and across the globe, that ranked first out of 193 nations according to Sustainable Development Goals Index in 20024 with a score of 86.35. The study explores whether ESG transparency results in better operational, financial and market outcome, drawing on theories of stakeholder, legitimacy, and agency. The study employs fixed effects regression models to investigate the effects of ESG disclosure scores, obtained from Bloomberg, on Return on Equity (ROE), Return on Assets (ROA), Tobin's Q, and annual stock returns using a panel dataset of 88 firms over a six- years period (2018–2023). The results show that the relationship between ESG disclosure and firm performance is largely statistically insignificant, with some dimensions even revealing a negative relationship. These findings suggest that while ESG reporting may serve legitimacy purposes in high-standard CSR environments like Finland, it does not necessarily yield measurable financial advantages. That said, the robustness test suggests that the link between ESG disclosures and firm performance can differ depending on the industry and timing of the ESG impacts. These results highlight the importance of considering the broader context when analysing the impact of ESG disclosures. This opens opportunities for future research to explore how ESG disclosures influences companies differently across sectors and over extended time periods. By focusing on Finnish firms, this study provides country specific insights to the growing body of CSR literature and highlight the need for further investigation into the qualitative and strategic dimensions of ESG practices within organizations.