Stakeholder Theory in Action, The Impact of ESG Practices on Financial Performance in SADC Region Food Producers

Abstract

This research aims to investigate whether Environmental, Social and Governance (ESG) practices influence corporate financial performance, by emphasizing the Southern African Development Community (SADC) region often underrepresented in global ESG discussions and focusing on the food producer sector that is one of the critical industries for this region. In order to achieve this aim, after the theoretical background on the subject, the empirical section examines whether engagement in ESG practices contributes to financial performance, measured primarily by Tobin's Q and alternatively by the market-to-book value ratio. Panel data models are applied to 8 years of data (2015-2022) from 32 publicly traded food producer companies in the SADC region. Additionally, for the robustness test, the analysis is also repeated on a subset of 14 food producers listed in South Africa. The findings highlight that companies disclosing ESG practices and so having ESG scores tend to operate with higher Tobin's Q and market-to-book value ratios. The findings suggest that companies actively involved in social, environmental, and governance initiatives, alongside transparent disclosure of their responsible practices, tend to exhibit superior financial performance. This finding is consistent with stakeholder theory, suggesting that firms can only enhance their long-term financial performance by fulfilling their responsibilities to all stakeholders and ultimately to society.