Determinants of Environmental Disclosure and Firm Value: Evidence From Latin American Energy and Mining Industries

Abstract

ABSTRACT We developed an Environmental Disclosure Index (EDI) to capture a broad and detailed range of environmental issues. This comprehensive approach helps reduce the risk of superficial or selective reporting by firms. Using the EDI, we analyzed the factors associated with environmental disclosure practices among 220 companies in the energy and mining sectors in Latin America over the period 2015–2023. Additionally, we examined how the level of environmental disclosure is associated with a firm's value. We found that corporate governance is related to environmental disclosure. On one hand, larger, more independent, and diverse boards were associated with greater environmental reporting. On the other hand, CEO duality has a negative link with disclosure. Additionally, firms with concentrated ownership or a State as the largest shareholder disclosed more environmental information. We also found a positive relationship between environmental disclosure and a firm's value, suggesting that transparent environmental practices can enhance investor perceptions and market valuation. Our findings highlight that strong corporate governance can lead to more comprehensive environmental disclosure, a dynamic that has been less clearly established in the Latin American context, where governance standards and transparency practices are less developed. Firms with better governance are more likely to adopt sustainable practices, which may lead to greater alignment with Sustainable Development Goals (SDGs) and higher valuation.