MARKETING INFLUENCE ON ESG DISCLOSURE CREDIBILITY: THE MEDIATING ROLE OF INTERNAL ASSURANCE MECHANISMS AND MODERATING EFFECT OF REGULATORY PRESSURE IN PAKISTANI LISTED FIRMS

Abstract

The Environmental, Social, and Governance (ESG) disclosure has rapidly emerged as a focal point of corporate responsibility and transparency. However, despite its growing prominence, a significant credibility gap exists as stakeholders often struggle to differentiate between the genuine sustainable performance of a company and the reputation-driven marketing communication. Addressing this gap, the present study explores the impact of marketing-motivated ESG-communication strategy on the credibility of ESG disclosures in Pakistan Stock Exchange (PSX)-listed companies. Specifically, the study investigates whether the internal assurance mechanism in terms of internal audit quality, sustainability committees, and board ESG oversight mediate the relationship between market-driven ESG communication and disclosure credibility. In addition, this study analyses the moderating influence of regulatory pressure arising from the Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Stock Exchange governance codes on the marketing-to-credibility pathway. Based on the theoretical framework of Signalling Theory, Legitimacy Theory, Agency Theory and Stakeholder Theory,  the study establishes a moderated mediation framework. Empirical analysis was based on the primary survey data with 312 senior executives, sustainability officers, and in-house auditors in 104 PSX-traded companies in six industries. The proposed hypothesis was tested by using structural equation modelling (SEM) and partial least squares estimation (PLS-SEM). The findings verify that marketing impact on ECG disclosure had a positive effect on credibility; however, the relationship was fully mediated by internal assurance systems. In other words, marketing-driven disclosure can only enhance credibility when it is supported by solid internal assurance systems. Moreover, the results show that regulatory pressure has a strong impact on the marketing assurance-credibility link, implying that more effective regulatory oversight can enhance the effectiveness of governance mechanisms in providing assurances of ESG disclosures. Overall, the results challenge the common assumption that ESG marketing activities are typically engaged in by companies as a form of greenwashing by showing that they can indeed be used to generate legitimate credibility benefits.