Abstract:

In an era of increasing environmental and social awareness, sustainability reporting is becoming a global trend that is regarded as an essential tool for organizations to demonstrate their commitment to sustainability, manage risks, and respond to stakeholder expectations. This study aims to examine the relationship between firm’s environmental, social and governance (ESG) performance and its financial performance in the Middle East and North Africa (MENA) Region. In addition, the study investigates the moderating role of firm size on the ESG performance - firm performance relationship. The paper relied on data panel drawn from Thomson Reuters Eikon database to analyze the abovementioned relationships on the countries in the MENA region during the period from 2013 to 2022. Based on a sample of 542 firm-year observations of non-financial firms in the MENA Region, the regression results showed that ESG performance contributes significantly towards better financial performance supporting the stakeholder’s theory. Additionally, firm size is a relevant moderator for the association between sustainability performance and financial performance nexus. Overall, the research results are of great interest as understanding how ESG practices affect financial performance could provide valuable insights for firms, investors, and policymakers seeking to optimize both sustainability efforts and financial outcomes.