2.1. DISCLOSURE OF CORPORATE ENVIRONMENTAL INFORMATION

The growing emphasis on corporate sustainability (Alsayegh et al., 2020; Moliterni, 2018) reflects increasing public awareness, corporate reputation concerns, and the imperative to mitigate environmental and operational risks. Companies now demonstrate their commitment through transparent disclosure practices and the adoption of comprehensive human rights and environmental policies (Brogi & Lagasio, 2018). This shift originated from academic-professional collaborations that recognized the impossibility of implementing effective Corporate Social Responsibility (CSR) without first addressing an organization's fundamental social and ethical dimensions. These efforts ultimately spurred the development of standardized methodologies for assessing corporate performance across social, ethical, and environmental parameters (Freeman et al., 2010).

Corporate reporting has emerged as a critical transparency mechanism for disclosing non-financial performance. This accountability framework helps organizations delineate their social responsibility parameters while communicating relevant information to stakeholders (Freeman et al., 2010). While disclosure practices vary globally, most jurisdictions now either mandate or encourage non-financial reporting (Zeng et al., 2019). Current adoption rates reveal a significant gap - although only 19% of listed companies worldwide publish sustainability reports, these firms account for 84% of global market capitalization (OECD, 2023), highlighting the disproportionate influence of large corporations in sustainability disclosure practices.

Research on corporate governance, ESG disclosure, and stakeholder orientation remains notably underdeveloped in Latin America and Mexico. Deeper examination of these areas could elucidate critical relationships between governance structures and stakeholder rights (Husted et al., 2019). ESG disclosure practices vary considerably across the region: while Brazil and Colombia emphasize climate-related reporting, other countries are increasingly focusing on broader sustainability communication. Notably, 330 companies representing 83% of the region's market capitalization now publish sustainability reports (OECD, 2023). Sectoral differences are pronounced - in 2021, 89% of mining and mineral processing firms disclosed sustainability information, compared to 61% of service sector companies and 66% of transportation firms.

A striking regional distinction emerges in verification practices: while just 63% of global companies employ third-party validation for their reports, this figure rises to 93% among Latin American disclosers (OECD, 2023). This verification gap underscores that while disclosure itself is important, the credibility of reported metrics remains essential for investor assessment of sustainability progress (Mustafa Khan & Mohd Ali, 2023). However, growing climate policy uncertainty has exacerbated greenwashing risks, particularly in polluting industries within weakly regulated markets. Evidence suggests that enhanced external regulatory pressures may effectively curb such practices (Zhang & Ge, 2024).

2.2. SUSTAINABILITY AND FIRM VALUE

Academic literature demonstrates a consistent negative relationship between carbon emissions and firm valuation across multiple markets. Benkraiem et al. (2022) established this inverse correlation in their analysis of 243 companies (2013-2019), showing that carbon performance improvements positively affect market valuation. This finding aligns with Nurul Houqe et al.'s (2022) study of 2,323 U.S. firms (2007-2016), which confirmed that higher emission levels decrease market value. The pattern persists in European markets, as Perdichizzi et al. (2024) documented using direct emissions data from 1,493 companies. Globally, Choi and Luo (2021) reinforced these conclusions through their examination of 1,748 annual observations, further validating the negative impact of emissions on corporate valuation.

These findings collectively suggest that stakeholders positively value effective carbon management, particularly since emissions' negative impact on firm valuation is more pronounced in countries with weaker environmental regulations (Choi & Luo, 2021). This market preference for substantive action over symbolic gestures is further evidenced by Guastella et al. (2022), whose analysis revealed that environmental disclosure indices lose statistical significance when controlling for actual environmental performance. Their results indicate that financial markets primarily assess corporate environmental behavior through measurable emission outcomes rather than disclosure practices when determining company valuations.

In the Latin American context, González et al. (2021) analyzed 454 companies using environmental initiatives as an emissions proxy, revealing that firms with stronger disclosure practices achieve both higher market valuations and superior accounting performance. The researchers developed a comprehensive disclosure index based on 50 binary indicators derived from environmental reports, where each affirmative response contributed one point to the total score. This methodology generated percentage scores ranging from 0% to 100%—for example, companies with 25 positive responses received a score of 50%, enabling standardized cross-company comparisons of disclosure quality.

While a significant correlation exists between ESG disclosure practices and carbon emissions (Baratta et al., 2023), mere compliance with ESG reporting requirements does not necessarily translate into better emissions performance. Treepongkaruna et al. (2024) demonstrated this disconnect in their analysis of U.S. firms (2005-2018), showing that higher ESG ratings failed to correlate with reduced emissions. This paradox stems from market dynamics where investors disproportionately value sustainability reporting itself—Flammer et al. (2021) found that simply publishing such reports signals corporate sustainability, making firms more attractive to investors regardless of their actual emissions control efforts (Arif Khan, 2022; Lee et al., 2022). This creates a perverse incentive where companies may prioritize disclosure over substantive environmental action.

2.3. RESPONSE TO CLIMATE CHANGE: ADAPTATION AND MITIGATION

Climate change mitigation refers to strategies aimed at counteracting the adverse impacts of climate change, primarily by reducing greenhouse gas emissions (IPCC, 2023) and slowing global warming. However, even full implementation of the Paris Agreement pledges would still lead to a 3.2°C temperature rise by 2100 (Rivera et al., 2022).

Recognizing these limitations, since the 2010 Conference of the Parties (COP), mitigation efforts have been complemented by adaptation strategies. Given that the cumulative effects of climate change will persist for centuries, adaptation is critical for enhancing resilience—developing capacities and reducing vulnerabilities in affected systems (IPCC, 2023; Sharifi, 2021).

Mitigation strategies focus on reducing greenhouse gas (GHG) emissions, encompassing corporate initiatives designed to curb their carbon footprint (Cadež & Czerny, 2015; Cadež et al., 2019). In contrast, adaptation strategies involve reactive or proactive measures taken by firms to minimize climate-related risks and enhance their resilience. To assess these adaptation efforts, Juhola et al. (2024) evaluate both internal and external factors, including economic and environmental performance, as well as regulatory compliance.

Research demonstrates that mitigation strategies effectively reduce emissions, with studies identifying three primary approaches: Scope 1 (direct emissions), Scope 2-3 (indirect emissions from energy/value chains), and offsetting mechanisms (Cadež & Czerny, 2015). While carbon-intensive firms tend to favor low-investment strategies like marginal efficiency gains – which show limited transition potential – broader mitigation efforts positively impact emissions performance. Cadež et al. (2019) confirmed this through a study of 247 European carbon-intensive firms, analyzing strategies including recycled materials, product redesign, energy efficiency, process optimization, and emissions-reduction technologies.

While mitigation strategies have received substantially more attention than adaptation efforts (Sharifi, 2021), research specifically measuring adaptation’s impact remains scarce. However, some studies have assessed adaptation through sustainability indices. For instance, Quian and Liu (2024) demonstrate that higher ESG ratings enhance carbon efficiency, particularly in non-state-owned and cleaner firms. Similarly, Haque and Ntim (2022) developed a disclosure index—based on 2 444 firm-year observations—tracking sustainable initiatives like emission reductions, environmental innovations, and resource efficiency. Their findings reveal that higher index scores correlate with lower GHG emission intensity, especially in polluting industries.

2.4. USE OF RESOURCES: CO₂, MATERIALS AND WATER

The literature demonstrates a strong emphasis on carbon emissions as the primary environmental metric, with markets predominantly using this measure to assess firm value. This focus has created a significant research gap regarding the valuation impacts of other critical resources. While environmental regulations increasingly align with SDG principles—promoting sustainable production without depleting natural resources—and despite 85% of global investors prioritizing water management and climate action (OECD, 2023), few studies examine non-carbon environmental factors. A notable exception is Simionescu et al. (2020), who identified negative correlations between both water consumption and waste generation with firm value, highlighting the need for broader environmental valuation metrics.

Cohen et al. (2023) analyzed 76 284 observations from the Carbon Disclosure Project (CDP) spanning 2003-2020, finding that carbon disclosure is significantly associated with reduced subsequent emissions. However, Bui et al. (2022) revealed an important nuance: while climate disclosure ratings exert pressure on poorly-rated firms to improve their reporting quality in subsequent years, these companies show little propensity to actually reduce their emissions - particularly among those with the lowest ratings.

Several studies have constructed environmental disclosure indices based on corporate initiatives. Iatridis (2013) developed an index assessing five key areas: (i) environmental management systems, (ii) credibility, (iii) performance indicators, (iv) environmental expenditures, and (v) environmental initiatives. The study found that companies with lower hazardous waste volumes and active reduction programs achieved higher disclosure ratings. Similarly, Giannarakis, Konteos et al. (2017) and Giannarakis, Zafeiriou et al. (2017) created a Climate Performance Leadership Index with five components (management, risks, emissions, opportunities, and approval), requiring a minimum score of 50 for inclusion (n = 102 and n = 119 firms, respectively). Both studies revealed that higher emissions correlated with lower carbon transparency, suggesting that stronger environmental performance (lower emissions) drives greater disclosure.

Research on non-carbon resources remains limited, likely due to weaker compliance requirements. Studies reveal significant gaps across sectors and regions: in France, companies fail to report water extraction data (Gibassier, 2018), while in China only 38% of listed firms disclose water metrics despite guidelines (Zeng et al., 2019). The mining sector lacks consensus on baseline water consumption levels across regions, hindering target-setting (Northey et al., 2019). Even in energy transitions, the water-carbon nexus persists—low-carbon technologies may increase water demand (Macknick et al., 2012).

Research on alternative environmental metrics remains scarce. Alonso Fernández et al. (2024) found that European Union dematerialization efforts have largely failed, with material resource reductions only occurring during the 2008 GDP contraction. In the electronics sector, waste volume studies exist, but implementation gaps persist—López Pérez et al. (2024) show Mexico's environmental policies lack supporting regulatory frameworks, discouraging proper resource management.

This literature review highlights a critical limitation: the overwhelming focus on CO₂ metrics neglects other vital resource measures, ultimately impeding progress toward Environmental Sustainability Goals.

3.1. DATA

This study evaluates the efficacy of environmental mitigation and adaptation initiatives implemented by Latin American publicly traded companies from 2017 to 2023. While disclosure rates have shown gradual improvement, they remain notably low relative to global standards. The sample comprised firms from six countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru). This group of countries accounts for approximately 480 million inhabitants, representing about 76% of Latin America's population. The contribution percentage is even higher (85%) when considering Gross Domestic Product as the variable (IMF, 2024). Although data were available for more countries, we restricted our sample to these six nations to avoid introducing additional heterogeneity.

As illustrated in Figure 1, sample companies account for an average of 12% of national CO₂ emissions across the six studied countries (Panel A). Chilean listed companies demonstrate disproportionately higher emission contributions compared to regional peers. Regarding water resources (Panel B), Brazil and Chile emerge as the dominant consumers among reporting firms. Data from Argentina, Colombia, Mexico, and Peru were excluded from water usage analysis as listed companies in these nations represent ≤0.5% of national withdrawals.

Figure 1

Note. a) In 2017 and 2023, 102 and 218 companies reporting CO₂, respectively, and b) in 2017 and 2021, 90 and 171 companies reporting water, respectively.

 

 Source: Authors’ elaboration using data from European Commission Emissions (2024) and Food and Agriculture Organization of the United Nations (2024).

The analysis draws on two primary data sources identified in the literature: Refinitiv (Perdichizzi et al., 2024; Treepongkaruna et al., 2024) and the Carbon Disclosure Project (Bui et al., 2022; Giannarakis, Konteos et al., 2017; Giannarakis, Zafeiriou et al., 2017; Haque & Ntim, 2022; Nurul Houqe et al., 2022). For this study, we utilized the LSEG Workspace database (Refinitiv's successor), which covers global listed companies.

Our sample selection process began with all companies listed on major Latin American stock exchanges (n = 725). After excluding 53 firms (23 inactive/incomplete records, 17 with pre-2018 data, and 13 trusts), the final sample comprised 672 companies analyzed over seven years (2017-2023), yielding 4 704 firm-year observations. Country-level distributions are detailed in Appendix 1.

Despite mandatory ESG disclosure requirements for public companies, reporting remains limited. Our sample construction required firms to disclose environmental indicators in at least three reporting years (2018, 2020, 2023), yielding a final sample of 156 listed companies (n = 1 106 firm-year observations). Sectoral and geographical distributions are presented in Appendix 1.

The environmental performance of companies signals market actors about sustainability commitments, enhancing corporate reputation and investor appeal through demonstrated reductions in pollution and improvements in resource efficiency (Arif Khan, 2022; Lee et al., 2022; Spence, 1973). This commitment operates through two distinct channels: mitigation actions (addressing climate change causes) and adaptation measures (managing climate impacts across time horizons). Our study focuses on analyzing how these mitigation and adaptation efforts influence environmental outcomes (CO₂ emissions and water use), while secondarily examining the relationship between resource efficiency and firm valuation. Accordingly, our dependent variables comprise both environmental metrics (emissions and water withdrawal) and financial performance (firm value).

3.2. VARIABLES

3.3. MODEL SPECIFICATION

A structural equation model (SEM) was developed to assess (i) the impact of resource use—specifically emissions intensity and water extraction intensity—on firm value (Equation 3, Hypothesis 2) and (ii) the effect of mitigation and adaptation actions on environmental performance (equations 4 and 5). Equation 3 evaluates how a company’s market value responds to changes in emissions and water intensity, while Equations 4 and 5 estimate the influence of mitigation and adaptation measures on emissions intensity and total water extraction intensity, respectively.

where the dependent variables are market value (MV), emissions intensity (co2_int) and water intensity (h2o_int). MV is the market capitalization value, co2_int refers to total emissions relative to revenue, and h2o_int refers to water withdrawal relative to revenue. Additionally, mitig_it is the mitigation index and adapt_it the adaptation index; x_it represents a set of control variables including cash flow, ROA, Leverage y Ebit. Post_it is a dummy variable representing a value of 1 for the years post-2020 and 0 for the preceding years. Ind_it is a dummy variable representing each industry.

The structural equation model included mitigation and adaptation actions in both Equations 4 and 5, but with distinct nonlinear specifications reflecting their different climate-related focuses. For Equation 4 (emissions intensity), we incorporated only the quadratic term of mitigation actions to capture their nonlinear effect on CO₂ reduction, as these actions directly target climate change mitigation. Conversely, Equation 5 (water extraction intensity) included the quadratic term of adaptation actions to assess their nonlinear impact on water use, consistent with their focus on addressing climate change consequences. This specification acknowledges that while both strategies were evaluated in each equation, their relative importance differs based on the environmental outcome being measured.

3.4. SUMMARY STATISTICS

The analysis used data from 2017 to 2023 to examine temporal trends. For comparison, the period was divided into two groups: pre-2021 and 2021–2023. This division was based on reporting patterns—only 17% of companies disclosed environmental information in the early years, while reporting rates increased significantly to 25% from 2021 onward. By comparing these periods, the study provides clearer insights into evolving trends and stronger evidence for recent developments.

Appendix 5 provides the descriptive statistics for the study variables. Overall, the mitigation index scores were consistently higher than those of the adaptation index. At the start of the study period (2017), the highest mitigation values were observed in the Mining, Extraction, Public Services, and Construction sectors (37 out of 100) and the Manufacturing sector (51 out of 100). By 2021, these values had risen to 66 and 70, respectively. In contrast, the Commerce and Services sectors (Sectors 4 and 5) showed lower initial scores (32 and 36 in 2017) but demonstrated the most significant growth, nearly doubling their values to 54 and 67 by 2021.

The increased corporate disclosure coincided with substantial improvements in mitigation efforts, with the most notable progress occurring between 2017 and 2021. By contrast, advances in 2023 were marginal. During this most recent period, all sectors converged around an average mitigation score of 70, with peak sector-specific values reaching as high as 90 out of 100.

In contrast to the mitigation trends, the adaptation index showed more consistent progress across industries in both 2021 and 2023, with smaller inter-sector disparities. The Mining, Utilities, and Construction sector (initial score: 39) and Manufacturing sector (46) demonstrated stronger initial performance compared to the Trade, Transport, and Storage sector (28) and Services sector (31). By 2021-2023, these scores had risen substantially to 65 and 75 for the first group, and to 50 and 60 for the second group (all scores out of 100).

Sectoral analysis revealed distinct environmental efficiency patterns, with Agriculture, Mining, and Manufacturing consistently exhibiting the highest emissions and water intensities. While Agriculture and Mining reduced CO₂ emissions by 2023, these gains failed to offset their 2021 increases, leaving Manufacturing as the only high-emission sector demonstrating sustained improvement. Among low-emission sectors, only Trade achieved measurable progress in emissions reduction. Water intensity patterns diverged, with Agriculture showing increased consumption while the other four sectors reduced their water use. These findings highlight sector-specific challenges in environmental performance, particularly the lagging adaptation of water-intensive sectors compared to emissions reduction efforts.