Environmental, Social, and Governance Disclosure, Eco‐Innovation, and Corporate Financial Performance: Insights From Sub‐Saharan African Markets

Abstract

Environmental, social, and governance (ESG) disclosure has become a crucial tool for demonstrating corporate accountability and sustainable development. While extensively studied in developed economies, its dynamics in emerging markets, particularly Sub‐Saharan Africa (SSA), remain underexplored. Grounded in stakeholder, resource‐based view, and legitimacy theories, we investigate the direct effects of environmental, social, and governance disclosure—denoted as environmental disclosure (ED), social disclosure (SD), and governance disclosure (GD)—on corporate financial performance (CFP), and the mediating role of eco‐innovation (EI). Using a sample of 264 listed firms from the manufacturing and energy sectors across four SSA sub‐regions (2010–2025) comprising 4224 firm‐year observations, we employ a two‐step System Generalised Method of Moments estimator with robust endogeneity checks. Our findings reveal a dimension‐specific impact: ED and SD significantly enhance CFP, while GD exhibits a significant negative direct relationship. Crucially, EI acts as a powerful mediator, not only strengthening the positive effects of ED and SD but also transforming the negative direct effect of GD into a positive net financial benefit. Further analysis reveals a U‐shaped relationship for ED and SD, indicating threshold effects. This study provides novel evidence that in SSA's evolving markets, technological eco‐innovation is the critical catalyst that unlocks the financial value of sustainability commitments, challenging one‐size‐fits‐all ESG perceptions. We therefore recommend that policymakers and managers in SSA adopt integrated strategies that couple substantive ESG transparency with targeted investments in eco‐innovation to advance sustainable development and secure robust financial returns simultaneously.