ESG Strategy Implementation and Market Value of Firms Listed at the Nairobi Securities Exchange
Keywords:
ESG, Governance, Nairobi Securities ExchangeAbstract
This research paper focuses on how the implementation of the environmental, social and governance (ESG) strategies affects the market value of the Nairobi Securities Exchange (NSE) listed firms in the years 2022- 2024. Although there is increasing attention to ESG practices in the global context there is paucity of empirical data on the financial worth of such practices in emerging capital markets in Africa. The paper had three aims; to test the role of environmental reporting, social responsibility reporting, and governance reporting in the determinants of firm market value. The research was based on post-positivist philosophy and descriptive research design, and used census approach where all the NSE-listed firms where data were available were used, where there were 166 observations (firm-years). Secondary data were obtained using published annual reports and databases of NSE market capitalisation. Descriptive statistics, a Pearson correlation and pooled OLS regression analysis were used to analyse data in Stata. The highest mean disclosure score (0.734), was registered in governance reporting, then came social reporting (0.651), and environmental reporting (0.542). The total ESG mean increased gradually since 0.629 in 2022 to 0.656 in 2024. The regression findings also established that all the three ESG dimensions had significant and positive effects on market capitalisation. The strongest impact was on social reporting (β = 2.014, p = 0.001), then the environmental reporting (β = 1.987, p = 0.001) and the governance reporting (β = 0.732, p = 0.032). The composite ESG model established a strong positive correlation (β = 5.084, p < 0.001) that expounds about 26.1% of market capitalisation variability. The findings are consistent with the stakeholder theory, the signalling theory and the cost of capital theory, indicating that ESG transparency can decrease the information asymmetry and increase investor confidence. The research suggests that NSE-traded companies should enhance the practices of ESG reporting and regulators should endeavour to establish more transparent sustainability reporting frameworks to help companies create corporate values in the Kenyan capital market.
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