ESG DISCLOSURE, GREEN INNOVATION, AND FIRM VALUE NEXUS: EVIDENCE FROM EMERGING MARKETS OF PAKISTAN

Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) disclosure, green innovation, and firm value in the context of non-financial firms listed on the Pakistan Stock Exchange (PSX). The primary objective is to investigate whether ESG disclosure enhances firm value directly and indirectly through green innovation as a mediating mechanism. Grounded in Stakeholder Theory and the Resource-Based View, the study adopts a quantitative, explanatory research design using panel data from 120 firms over the period 2019–2024. ESG disclosure is measured through a composite disclosure index, green innovation is proxied by R&D-based environmental innovation indicators, and firm value is assessed using Tobin’s Q along with financial performance measures. The data are analyzed using descriptive statistics, correlation analysis, multiple regression, and mediation analysis. The empirical results reveal that ESG disclosure has a significant positive impact on both green innovation and firm value. In addition, green innovation significantly enhances firm value, indicating that environmentally responsible innovation contributes to improved market valuation and financial performance. Mediation analysis further confirms that green innovation partially mediates the relationship between ESG disclosure and firm value, suggesting that ESG practices create economic value both directly and through innovation-driven mechanisms. These findings highlight the strategic importance of sustainability disclosure and innovation integration in emerging markets. The study contributes to the literature on sustainable finance by providing evidence from Pakistan, an under-researched emerging economy characterized by evolving ESG frameworks and limited green innovation adoption. It offers practical insights for corporate managers, investors, and policymakers regarding the value-enhancing role of ESG-oriented strategies.