article · Management & Sustainability An Arab Review
Analysis of 32 firms listed on the Casablanca Stock Exchange between 2018 and 2023 examines whether environmental, social, and governance (ESG) performance improves profitability, and how corporate governance influences this link. Using fixed-effects panel regressions accounting for financial controls and governance traits such as board size, gender diversity, and ownership structure, the findings demonstrate a positive and statistically significant relationship between ESG performance and return on assets. This confirms that sustainability engagement brings tangible economic returns in the Moroccan market. In contrast, corporate governance mechanisms show limited moderating effects on this relationship, with most interaction terms lacking statistical significance. Governance factors instead act directly on firm discipline and financial performance, rather than serving as amplifiers of sustainability gains. The evidence underscores that integrating substantive ESG strategies creates direct financial value within developing institutional settings.
Understanding the financial return on sustainability helps emerging market businesses justify responsible practices. This research demonstrates that investing in environmental, social, and governance standards directly improves accounting profitability. For investors and regulators, it shows that sustainability initiatives deliver measurable economic benefits independent of whether complex governance mechanisms are already in place to amplify them.
This empirical analysis offers actionable insights for corporate managers, investment analysts, and policymakers designing sustainability reporting frameworks or ESG-aligned investment portfolios in emerging markets. While not presenting a tangible technology or commercial product, the applied findings provide ready-to-use benchmarks and justification for commercial firms seeking to operationalise ESG investments to boost profitability.
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Purpose This study addresses the ongoing debate on the environmental, social and governance (ESG)–financial performance nexus by examining whether ESG performance enhances firm profitability and whether corporate governance mechanisms condition this relationship in an emerging market context. Design/methodology/approach The empirical analysis relies on a panel of 32 firms listed on the Casablanca Stock Exchange over the period 2018–2023 (192 firm-year observations). Panel regressions are estimated using fixed effects models to control for unobserved time-invariant heterogeneity and mitigate omitted variable bias. The model incorporates key financial controls (leverage, asset tangibility and firm age) as well as a comprehensive set of governance mechanisms, including board size, gender diversity, ownership structure and ownership concentration. Findings The results reveal a positive and statistically significant association between ESG performance and accounting profitability (ROA), indicating that sustainability engagement is associated with tangible economic benefits in the Moroccan context. However, the moderating role of governance mechanisms appears limited, as most interaction effects are statistically insignificant. Governance variables mainly exert direct effects on financial performance, suggesting that governance functions primarily as a structural determinant of firm discipline rather than as a systematic amplifier of ESG-related returns. Practical implications The findings suggest that ESG integration may generate financial value even in institutional environments undergoing gradual development. For managers, investors, and policymakers, the results highlight the importance of substantive sustainability strategies that go beyond formal governance configurations. Originality/value By jointly examining ESG performance, financial outcomes and governance mechanisms in a North African emerging market, this study provides context-specific evidence and refines the understanding of how sustainability and governance interact in shaping firm performance.
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DOI: 10.1108/msar-12-2025-0501
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