Evaluating the effects of environmental management practices on environmental and financial performance of firms in Malaysia: the mediating role of ESG disclosure

Abstract

The concepts of environmental and business sustainability are well-established in the business lexicon of progressive firms. However, firms are yet to examine the effects of environmental management practices (EMPs) on environmental performance (EP) and financial performance (FP) by connecting the missing linkage of environment, social, and governance disclosure (ESGD). This study analyses the impact of EMPs on EP and FP and offers empirical evidence of whether ESGD mediates the relationship between EP and FP of firms in Malaysia. The data from 141 listed firms on Bursa Malaysia was extracted between 2009–2020. The data was analyzed using data envelopment analysis (DEA) and the generalized method of moments (GMM) technique. The findings reflect that EMPs have a significant positive effect on EP and all five proxies of EP have a significant positive effect on ESGD (except ‘S’) and FP. Also, ESGD together with its three proxies mediates the relationship between EP and FP. The findings of this research offer an empirical rationale for regulators and policymakers of industrial firms to accelerate their EMPs and improve ESGD mechanisms for better environmental and financial outcomes.

Keywords

• Environmental management
• Environmental practices
• Environmental performance
• Financial performance
• ESG