Determinants of Environmental, Social, and Governance reporting compliance by companies listed on the Nairobi Securities Exchange

Abstract

This study examined the determinants of Environmental, Social, and Governance (ESG) reporting disclosure compliance by the sixty-three (63) companies listed on the Nairobi Securities Exchange (NSE) in the year 2022. Given the increasing global emphasis on sustainable business practices, understanding the factors influencing ESG reporting compliance in Kenya’s corporate sector is crucial. The study aimed at assessing the level of ESG disclosure compliance by the NSE-listed companies, evaluate the impact of firm size and profitability on ESG disclosures, and analyze the relationship between regulatory pressure and ESG reporting compliance. Using a positivist research philosophy, the study employed a cross-sectional research design and panel data regression models, drawing data from 2022 ESG reports of NSE-listed firms. A census approach was used, ensuring comprehensive coverage of the study population. The findings revealed moderate ESG reporting compliance among NSE-listed companies. Firm size and profitability were significantly correlated with higher ESG reporting compliance. However, regulatory pressure was found to have an insignificant effect on ESG reporting compliance, indicating weak enforcement mechanisms in Kenya. The study concluded that while ESG reporting compliance is improving, regulatory frameworks need strengthening to ensure more consistent adherence. It recommended enhancing enforcement mechanisms, building institutional capacity for better monitoring, and incentivizing firms to exceed minimum compliance standards. Strengthening stakeholder engagement and fostering industry collaboration were also key strategies for improving ESG disclosure in Kenya. However, the study was limited by its reliance on secondary ESG data, which may not fully capture qualitative aspects of compliance practices and excluded unlisted firms that could provide broader insights into Kenya’s corporate sustainability landscape.