Green signaling or greenwashing? ESG disclosure, firm performance and capital allocation in BRICS equity markets

Purpose – This study investigates whether environmental, social and governance (ESG) disclosures are priced in capital markets and influence institutional investment in BRICS countries. It explores whether the credibility and financial impact of ESG signals depend on national governance quality. Design/methodology/approach – Using a panel dataset of 900 firms across Brazil, Russia, India, China and South Africa (2015–2023), the study employs fixed effects and interaction models to evaluate the impact of ESG disclosure on firm valuation (measured through Tobin's Q as a market-based performance indicator and ROA as an operational performance indicator) and capital allocation (institutional ownership changes). It further disaggregates ESG into subdimensions and conducts robustness checks across governance environments. Findings – ESG disclosures are positively associated with firm valuation and institutional capital allocation, but primarily in countries with higher governance quality. Environmental scores exert the strongest and most consistent influence. Interaction models confirm that governance strength enhances the signaling power of ESG, while weak institutions dilute market responses. Research limitations/implications – The analysis is limited to disclosure-based metrics; future studies should assess whether ESG signals translate into real-world sustainability outcomes. Practical implications – Investors should tailor ESG strategies to institutional contexts to avoid misallocations in low-governance settings. Originality/value – The article advances signaling and institutional theory by showing that ESG's financial impact is conditional, not universal. It challenges assumptions of ESG homogeneity and offers a context-sensitive framework for understanding sustainable finance in emerging markets.