Title: CLIMATE FINANCE, ESG PRACTICES AND CORPORATE FINANCIAL PERFORMANCE OF LISTED COMPANIES IN EMERGING AFRICAN MARKETS: THE MODERATING ROLE OF CORPORATE GOVERNANCE QUALITY

Author: Mutua John Wambua

Abstract: Climate finance and sustainable investment have become increasingly important in corporate decision-making as firms face growing pressure from investors, regulators, and stakeholders to integrate environmental, social, and governance (ESG) practices into their strategies. This study examined the effect of ESG practices on corporate financial performance among listed companies in emerging African markets, with corporate governance quality as a moderating variable. Specifically, the study examined the effects of ESG disclosure quality, green investment, and carbon management practices on corporate financial performance. The study was anchored on Stakeholder Theory and Resource-Based View Theory and employed an explanatory research design using a quantitative approach. Secondary panel data were obtained from 50 listed companies across selected emerging African economies covering the period 2015–2025, resulting in 550 firm-year observations. Corporate financial performance was measured using return on assets (ROA), Tobin’s Q, and market capitalization, while ESG disclosure quality, green investment, carbon management practices, corporate governance quality, firm size, and financial leverage were incorporated into the analytical model. Panel regression analysis was conducted using fixed effects estimation, alongside moderation analysis to determine the role of corporate governance quality. The descriptive findings indicated that sampled firms demonstrated moderate ESG adoption, with ESG disclosure quality recording a mean score of 66.13, green investment 45.54, carbon management practices 58.50, and corporate governance quality 67.53. Corporate financial performance recorded an average ROA of 8.81 and Tobin’s Q of 2.10. Correlation analysis revealed significant positive relationships between ESG disclosure quality and corporate financial performance (r = 0.624, p < 0.01), green investment (r = 0.547, p < 0.01), carbon management practices (r = 0.581, p < 0.01), and corporate governance quality (r = 0.596, p < 0.01). Panel regression results demonstrated that ESG disclosure quality significantly improved corporate financial performance (β = 0.041, p < 0.001), green investment had a positive and significant effect (β = 0.028, p = 0.001), and carbon management practices significantly enhanced performance (β = 0.035, p < 0.001). The regression model explained 64.2% of the variation in corporate financial performance (R² = 0.642). Furthermore, moderation analysis established that corporate governance quality significantly strengthened the ESG-performance relationship, with the interaction effect between ESG practices and governance quality being positive and significant (β = 0.018, p = 0.003), increasing the explanatory power of the model to 71.3% (R² = 0.713). The study concluded that ESG practices represented strategic capabilities that contributed to improved corporate financial performance among listed companies in emerging African markets. The findings supported Stakeholder Theory by demonstrating that sustainability practices enhanced stakeholder relationships and investor confidence, while Resource-Based View Theory was supported by evidence that ESG capabilities generated competitive advantages. The study recommended that listed firms strengthen ESG disclosure, increase investment in green technologies, improve carbon management strategies, and enhance governance mechanisms to maximize the financial benefits of sustainability practices.

Keywords: ESG practices, climate finance, sustainable investment, corporate financial performance, corporate governance quality, emerging African markets, green investment.

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