Corporate Sustainability Disclosure, Financial Materiality and Financial Performance of Listed Firms in Sub-Saharan Africa

Abstract

This study investigates the effect of corporate sustainability disclosure (CSD) on the financial performance of listed firms in Sub-Saharan Africa, emphasising the moderating role of financial materiality (FM). Adopting a positivist philosophical paradigm and a quantitative research approach, the study employed an explanatory research design to test hypothesized relationships among key variables using Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q as financial performance proxies. The findings reveal that FM has a consistently positive and statistically significant effect on firm financial performance across all three indicators, suggesting that firms emphasising financially material environmental, social, and governance (ESG) disclosures are more likely to achieve superior financial outcomes. In contrast, the effect of generic CSD on financial performance was weaker and less consistent. Although positive and significant under certain model estimations, CSD’s impact diminished under the Fixed Effects analysis. Its effect on Tobin’s Q was also marginal, indicating limited financial benefits when sustainability disclosures are not linked to material issues. Importantly, the interaction effect between FM and CSD, particularly through board expertise, showed a consistently positive influence on financial performance. This underscores the critical role of financially literate board members in translating ESG data into strategic financial value. The study recommends that firms prioritize financially material ESG disclosures, integrate sustainability into core business strategies, and enhance board financial expertise to maximize the value of ESG practices.