ESG performance and market risk: The mediating role of risk disclosure quality in the brazilian market
DOI:
https://doi.org/10.36517/contextus.2026.96654Keywords:
ESG performance, market risk, quality of risk disclosure, readability, stakeholdersAbstract
Background: Environmental, social, and governance (ESG) aspects have attracted the attention of shareholders, investors, governments, and communities in recent years, being viewed as a framework that helps stakeholders understand how an organization manages risks and opportunities.
Objective: To investigate the relationship between ESG performance and market risk, and whether this relationship is mediated by the quality of risk disclosure in Brazil.
Method: To assess ESG performance, the study used the Refinitiv database, which classifies performance indicators across three pillars: environmental, social, and corporate governance. For the analysis of market risk, the beta extracted from Economática was used. To analyze the quality of risk disclosure, three readability metrics were employed: the Flesch index, the Fog index, and the natural logarithm of text length. Descriptive statistics and structural equation modeling were employed, covering the period from 2017 to 2022 for 67 Brazilian publicly traded companies.
Results: Significant relationships exist between ESG performance and beta at the 1% significance level, between beta and the natural logarithm of text length at the 1% level, and between the natural logarithm of text length and ESG performance at the 10% level. The analysis of the relationship between ESG performance and market risk, including the mediating variables natural logarithm of text length and Fog index, revealed an indirect effect, statistically significant at the 10% level.
Conclusions: Drawing on Stakeholder Theory and contributing to the discussion of the Brazilian market, the study revealed through structural equation modeling that risk disclosure quality is capable of mediating the relationship between ESG performance and market risk.
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