ESG Disclosure and Sustainable Business Performance: A Conceptual Model of Stakeholder Trust and Corporate Reputation

Abstract

Environmental, Social and Governance (ESG) reporting has become an essential part of listed Indian companies. However, it has been found that ESG reporting does not always have a positive effect on business performance due to differences in quality of reporting, perception and reputation amongst businesses. In this paper we provide a conceptual model which explains how ESG reporting can affect sustainable business performance. This is by looking at how reporting influences stakeholders, increases stakeholder trust and improves business reputation.

This study draws on several theories including Stakeholder Theory, Signalling Theory, Legitimacy Theory, Resource-Based View and Institutional Theory. The conceptual model will differentiate between actual ESG performance and what is reported in sustainability reports. The model will show that high quality, complete, relevant and comparable ESG reporting will improve stakeholder perception. This will in turn lead to increased stakeholder trust and improved reputation. This helps to contribute towards sustainable business in the long run. ESG assurance will help to increase the credibility of disclosure. Financial resilience will help to convert stakeholder trust and reputation to sustainable business.

This research has been conducted using a conceptual approach and therefore no primary data has been collected or any statistical analysis performed. The framework will provide theoretical insights into the linkages between ESG disclosure and sustainable business performance in India. It will also provide useful practical insights for companies, investors and regulators to improve the quality of disclosure, assurance, stakeholder trust and sustainable business.