Ethical investment and financial sustainability among resource extraction companies in South Africa : the moderating role of disclosure quality

Abstract

The objective of this study is to investigate the moderating role of disclosure quality in the relationship between ethical investment strategies and financial sustainability among resource extraction companies in South Africa. In recent years, ethical considerations have become increasingly central to the investment landscape, as investors and stakeholders place greater emphasis on aligning financial activities with broader societal values and sustainable development goals. This has led to the emergence of ethical responsible investment, which seeks not only financial returns but also positive environmental, social, and governance outcomes. While existing literature has explored the broad association between ethical investment and financial sustainability, the specific mechanisms through which disclosure quality moderates this relationship remain underexplored. This study is relevant because historical inequalities, regulatory changes, and evolving stakeholder expectations in South African have created a complex environment for resource extraction companies. The country has been a global hub for mineral resources, playing a pivotal role in the mining and extraction industries. This study used ethical investment, disclosure quality, and financial sustainability performance data from 2013 to 2022. Ethical investment and disclosure quality data were collected from the integrated reports of the firms and financial sustainability data was sourced from Bloomberg and McGregor BFA databases. This study used a multiple regression estimating method based on the benefits from panel data analysis. The system generalized method of moments; a dynamic estimating methodology was used in the study to estimate the model's parameters. The findings showed that institutional ownership, ownership type, research and development, profitability, size, age, leverage, book to market ratio and liquidity influences the adoption of ethical investment. The study further found that ethical investment has a positive relationship with profitability and firm value. According to the finding, disclosure quality influences the relationship between ethical investment and financial sustainability. The implication of this result is that transparency and accountability in companies lead to decision-making certainties among investors which creates lower perceived risks and higher expected returns, thus increasing stock prices. Therefore, ethical investment disclosure can result in decreased information asymmetry and increased trust from investors in ethically responsible companies. The study recommends that companies should provide transparent and accurate information for stakeholders to gain trust, this will attract more ethical investments, thus resulting in more financial sustainability. The study contributes to the advancement of ethical investment research by establishing the connection between ethical investment and financial sustainability with the disclosure quality as a moderator.