The ESG disclosure–performance paradox in BRICS: Evidence from shareholder returns and firm value

This study examines the financial implications of corporate sustainability disclosure and performance across emerging economies, using a panel of 2987 firm-year observations from 2016 to 2023. A Two-Stage Least Squares approach is employed to address endogeneity and assess both integrated and selective sustainability strategies. The results indicate that integrated sustainability disclosure—encompassing environmental, social, and governance (ESG) dimensions—positively influences profitability and investor confidence, whereas selective disclosure and performance erode shareholder returns and overall profitability. The study reveals a key paradox in emerging markets: although the financial market tends to reward transparent and well-structured sustainability communication, there is no evidence that sustainability performance alone enhances financial returns. Conversely, even strategically aligned ESG practices may diminish firm value when they exceed an optimal threshold, as illustrated by the Too-Much-of-a-Good-Thing (TMGT) effect. Findings suggest that moderate ESG performance, when paired with high-quality disclosure, yields significant financial benefits by leveraging reputational capital and signaling advantages—especially in institutional contexts marked by regulatory asymmetries and information gaps. In contrast, firms positioned in the ''gray zone'' of intermediate ESG performance and disclosure tend to produce the least favorable financial outcomes, lacking both credibility and operational excellence. Drawing on stakeholder, agency, legitimacy, signaling, and institutional theories, the study suggests that in emerging economies, financial returns from sustainability are shaped not solely by the extent of ESG engagement, but by the strategic alignment and perceived credibility of both communication and performance..