Sustainability Risk Management and Financial Distress: The Moderating Role of Financial Performance in Saudi Firms

Doaa Hafez Emam Abdellattif (), Amina Ramadan Mouhamed Nomer and Dalida Mohamed Adel Eldawayaty
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Doaa Hafez Emam Abdellattif: Department of Accounting, College of Business Administration, Princess Nourah Bint Abdulrahman University (PNU), P.O. Box 84428, Riyadh 11671, Saudi Arabia
Amina Ramadan Mouhamed Nomer: Department of Accounting, College of Business, Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O. Box 5701, Riyadh 11432, Saudi Arabia
Dalida Mohamed Adel Eldawayaty: Accounting Department, Faculty of Management Sciences, October University for Modern Sciences and Arts (MSA), Cairo 12451, Egypt

Sustainability, 2025, vol. 17, issue 21, 1-37

Abstract: The rising demand for sustainability disclosure, the risks it entails, and the strategies firms employ to manage these risks represent a critical area of contemporary research. This research aims to investigate the impact of sustainability risk management (SRM) on a firm’s financial distress (FFD). In addition, it examines the influence of the firm’s financial performance as a moderator variable on this relationship. This research adapts a quantitative analysis to explore these relations based on a sample of 77 Saudi firms listed on the Tadawul stock exchange in 2023. It relies on the SRM score presented by Morningstar Sustainalytics, as it is considered one of the largest environmental, social, & governance (ESG) rating firms. While the direct relationship between SRM and FFD is statistically insignificant, the findings show a significant moderating effect of firm performance, especially for firms with medium SRM levels. This demonstrates the importance of organizational and contextual factors in the interplay between SRM and FFD. The research results have valuable insights for decision-makers in the Kingdom of Saudi Arabia by providing more understanding about the importance of adopting a comprehensive risk management framework that includes sustainability risks. Adapting sustainability practices and risk management becomes essential for Saudi firms. Therefore, managers in Saudi firms should consider the firms’ profitability when implementing SRM strategies, as these may not consistently contribute to stability across all financial conditions.

Keywords: sustainability risk management; ESG; firm’s financial distress; financial performance; Saudi firms (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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