Description
Sustainability is a crucial issue for corporate world today. The interest of investors in Socially Responsible Investment (SRI) has grown substantially over last decade. Thus, sustainability has potential to influence company performance.
© 2013. Priyanka Aggarwal. This is a research/review paper, distributed under the terms of the Creative Commons Attribution-
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Global Journal of Management and Business Research
Finance
Volume 13 Issue 11 Version 1.0 Year 2013
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853
Impact of Sustainability Performance of Company on its
Financial Performance: A Study of Listed Indian Companies
By Priyanka Aggarwal
Keywords: Corporate Sustainability, Financial Performance, Corporate Social Responsibility
(CSR), Sustainability Reporting, Socially Responsible Investment (SRI), Global Reporting Initiative
(GRI).
GJMBR-C Classification :
ImpactofSustainabilityPerformanceofCompanyonitsFinancialPerformanceAStudyofListedIndianCompanies
Strictly as per the compliance and regulations of:
University of Delhi, India
FOR Code:150304 JEL Code: D92, F65
Abstract- Sustainability is a crucial issue for corporate world today. The interest of investors in
Socially Responsible Investment (SRI) has grown substantially over last decade. Thus,
sustainability has potential to influence company performance. The purpose of this paper is to
find “whether sustainable companies are more profitable”. Various researches were conducted in
past for examining this relationship. Results, however, have been mixed and inconclusive.
Moreover, most of the studies have been conducted in context of developed countries.
Impact of Sustainability Performance of
Company on its Financial Performance: A
Study of Listed Indian Companies
Priyanka Aggarwal
Abstract- Sustainability is a crucial issue for corporate world
today. The interest of investors in Socially Responsible
Investment (SRI) has grown substantially over last decade.
Thus, sustainability has potential to influence company
performance. The purpose of this paper is to find “whether
sustainable companies are more profitable”. Various
researches were conducted in past for examining this
relationship. Results, however, have been mixed and
inconclusive. Moreover, most of the studies have been
conducted in context of developed countries. The purpose of
this paper is to examine impact of sustainability rating of
company on its financial performance in an Indian context
using secondary data. We also separately analyze impact of
four key components of sustainability (i.e. Community,
Employees, Environment and Governance) on financial
performance. We find no significant association between
overall sustainability rating and financial performance.
However, further analysis reveals that four components of
sustainability have significant but varying impact on financial
performance.
Keywords: corporate sustainability, financial
performance, corporate social responsibility (CSR),
sustainability reporting, socially responsible investment
(SRI), global reporting initiative (GRI).
I. Introduction
ustainability is currently a burning issue and a
major cause of concern across the globe. At the
World Commission on Environment and
Development (WCED), Brundtland (1987) defined
sustainability as – “meeting the needs of the present
generation without compromising the ability of future
generations to meet their own needs.” The interest of
investors in company’s non-financial performance has
grown significantly over the past few years (Ernst &
Young, 2009). In the wake of increased regulations and
growth in level of awareness of stakeholders, the
concept of corporate sustainability has been assuming
great importance. World Business Council for
Sustainable Development (2002) defined Corporate
Sustainability as -
“the commitment of business to
contribute to sustainable economic development, and to
work with employees, their families, the local community
and society at large to improve their quality of life.”
Author:
Research Scholar, Department of Commerce, Delhi School of
Economics, University of Delhi, Delhi,
India
e-mail: [email protected]
Today, the firms should take accountability for
various beneficial and harmful impacts of their activities
on the overall society and environment in which they
exist. Moreover, the firms should make proper
disclosure of these impacts in an appropriate
sustainability report, which provides a detailed
description of their governance structure, stakeholder
engagement approach and triple bottom line
performance. Elkington (1998) developed the term ‘triple
bottom line’ to emphasize on three aspects -
people
(social), profits (economic) and planet (environmental).
Global Reporting Initiative (2011) defines Sustainability
Reporting as –
“the practice of measuring, disclosing,
and being accountable to internal and external
stakeholders for organizational performance towards the
goal of sustainable development.”
It is widely believed and suggested by
researchers that in today’s dynamic and complex
business environment, the corporate sustainability is
likely to influence corporate profitability and overall
performance. It lays a foundation for preserving and
enhancing value of firm. The firms reap plenty of
strategic benefits as a result of embedding sustainability
in their core strategies. These various benefits of
corporate sustainability are shown in Figure 1 below.
S
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Figure 1 : Benefits of corporate sustainability
Corporate Sustainability and its impact on
financial performance have emerged as important areas
for research in recent years. Various studies have been
performed over the last decade for examining this
relationship. However, the results have been mixed and
inconclusive. Moreover, most of the previous studies
have been conducted in the context of developed
countries (like US, Europe, UK, Australia, etc.).
Therefore, this paper attempts to analyze the impact of
overall sustainability and its four major components on
corporate financial performance in an Indian context.
II.
Objectives of Study
The primary objective of this paper is to find
“whether sustainable companies are more profitable or
not”. Some specific objectives have been formulated to
achieve this main object, which are as follows:
•
To provide an overview of the concept of corporate
sustainability and its various components.
•
To present various related theories establishing
relationship between corporate sustainability and
financial performance.
•
To provide literature review on the relationship
between corporate sustainability and corporate
financial performance.
•
To empirically analyze the impact of overall
sustainability rating of company on its financial
performance.
•
To examine and analyze separately the impact of
each of the four major components of sustainability,
i.e. Community, Employees, Environment
and
Governance on financial performance of company.
•
To analyze whether companies with higher
sustainability ratings are more profitable or not.
III.
Concept of Corporate Sustainability
As per the report by Mays (2003),‘Corporate
Sustainability’ means creating
long-term shareholder
value by embracing opportunities and managing risks
arising from social, environmental and economic
factors. The Mays Report also specified advantages of
corporate sustainability. Sustainable behavior adds
value to commercial endeavor and makes for good
business sense. It is specifically a helpful instrument to
manage corporate image. It helps in assessing the
capabilities and effectiveness of business administration
and management. It leads to shift in the organizational
focus from short-term to long-term goals. Transparency
is an essential element of corporate sustainability. It can
be assessed along various dimensions like: energy
efficiency, community relations, eco design, materials
efficiency, product recyclability, and employee relations.
The four major components of corporate sustainability
have been described in Table 1 below.
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
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Table 1 :
Components of corporate sustainability
Source: CSRHub (www.csrhub.com)
IV.
Related Theory
There are three major theories, namely,
Legitimacy Theory, Stakeholder Theory and Agency
Theory, which suggest that companies should be
sustainable and should incorporate corporate
sustainability in their core strategic goals. The
companies should disclose
their sustainability
performance in a proper sustainability report. These
theories primarily suggest positive relationship between
corporate sustainability and company performance.
These theories are briefly shown in Figure 2 below.
Components
Description
1)
COMMUNITY
The
Community Component
covers the company’s commitment and
effectiveness within local, national and global community in which it
does business. It reflects company’s citizenship, charitable giving
and volunteerism. This component covers company’s human rights
record and treatment of its supply chain. It also covers the
environmental and social impacts of company’s products and
services, and development of sustainable products, processes and
technologies.
Human rights, supply chain, product
quality & safety, product sustainability,
community development, philanthropy.
2)
EMPLOYEES
The
Employees Component
includes disclosure of policies,
programs, and performance in diversity, labor-relations and labor-
rights, compensation, benefits, and employee training, health and
safety. It focuses on compliance with national laws and regulations,
fair treatment of all
employees, disclosure of workforce diversity data,
strong labor codes, comprehensive benefits, training and
development opportunities, and employee health and safety policies.
Diversity, labor rights, treatment of unions,
compensation, benefits, training, health,
worker safety
3)
ENVIRONMENT
The
Environment Component
data covers company’s interactions
with the environment at large, including use of natural resources, and
company’s impact on Earth’s ecosystems, compliance with
environmental regulations, leadership in addressing climate change,
energy-efficient operations, renewable energy, natural resource
conservation, pollution prevention programs, strategy towards
sustainable development and programs to engage stakeholders for
environmental improvement.
Environmental policy, environmental
reporting, waste management, resource
management, energy use, climate change
policies and performance.
4)
GOVERNANCE
The
Governance Component
covers disclosure of policies,
procedures, board independence and diversity, executive
compensation and evaluation of company’s culture of ethical
leadership and compliance. This component rates factors such as –
alignment of corporate policies and practices with sustainability
goals; transparency to stakeholders; integration of sustainability
principles from top down into day-to-day operations of company.
Governance focuses on how management is committed to
sustainability and corporate responsibility at all levels.
Leadership ethics, board composition,
executive compensation, transparency
and reporting, and stakeholder treatment.
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
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Figure 2 : Related theories
V.
Literature Review
Corporate sustainability and its impact on
financial performance have emerged as key areas for
research in recent years. Various research studies have
been performed over the last decade for examining this
relationship. However, the results have been
inconclusive, inconsistent, and often contradictory. It
ranges from positive (Greenwald, 2010; Eccles et al.,
2012; N. Burhan & Rahmanti, 2012; Khaveh et al., 2012;
de Klerk & de Villiers, 2012; Ngwakwe, 2009; Ameer &
Othman, 2012; Guindry & Patten, 2010; Schadewitz &
Niskala, 2010) to negative (Lopez et al., 2007; Detre &
Gunderson, 2011) to mixed (Jones, 2005; Brammer et
al., 2006; Mohd Taib & Ameer, 2012; Manescu, 2011;
Semenova et al., 2009) and even to insignificant
relationship (Van de Velde et al., 2005; Buys et al., 2011;
Adams et al., 2012; Venanzi, 2012; Humphrey et al.,
2012). The researchers use various types of measures
for financial performance -
Accounting -
based
measures such as ROA, ROE, PBT, etc. and Market-
based measures such as Stock Returns,
Share Prices,
MVA, etc. The various measures for firm’s Sustainability
Performance used by researchers are –
GRI-based
Disclosure Index Scores, Existence of firms’ GRI
Sustainability Reports, External Sustainability Ratings
(from KLD, Vigeo, or Asset 4 database), etc. The review
of literature has been presented in Table 2 given below.
Table 2 : Relationship between corporate sustainability and financial performance
S.No.
Study & Country
Measure of Corporate
Sustainability
Measure of Financial
Performance
Relationship
1
Jones (2005)
-
Australia
GRI Sustainability Reporting
Index Score
Market adjusted
returns; other financial
ratios; and financial
distress probability
scores.
Mixed Results with
different measures
of company
performance
2
Van de Velde et al.
(2005)
-
Europe
Vigeo Sustainability Scores on -
Human Resources, Environment,
Customers & Suppliers,
Community & Society, and
Average Monthly
Returns on portfolio
Positive, but not
significant
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
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Corporate Governance
3 Brammer et al. (2006)
- UK
Composite/Aggregate
Sustainability Score from EIRIS
database
Stock Returns Negative
4
Moneva and Ortas
(2008)
–
Europe
Disclosures in GRI Sustainability
Report
Share Price Returns
Not Significant
5
Buys et al. (2011)
-
South Africa
Submission of Sustainability
reports to GRI
ROA,
ROE, EVA and
MVA
Slightly positive,
but not significant
6
Dhaliwal et al. (2011)
–
US
KLD Ratings
Cost of Equity Capital
Negative
7
Ameer and Othman
(2012)
-
Developed
Countries
Scores on 4 Indices –
Environment, Diversity,
Community and Ethics
Sales revenue growth
(SRG), ROA, PBT and
CFO
Positive & bi-
directional
relationship
8
Bayoud et al. (2012)
-
Libya
Disclosure of Environmental,
Consumer, Community
Involvement, Employee
Performance
ROA, Revenue, ROI
Positive
9
Eccles et al. (2012)
-
US
ESG disclosure scores from
Asset4, Bloomberg and SAM
database
Stock returns, ROA,
ROE
Positive
10
N. Burhan and
Rahmanti (2012)
-
Indonesia
GRI based Disclosure Index
Score
ROA
Positive
11
Venanzi (2012)
-
Europe
Social ratings on community,
corporate governance,
customers, employees,
environment, suppliers, business
ethics, & controversies.
ROE, ROA, ROS.
Not Significant
VI.
Hypotheses
Based on
theoretical arguments and review of literature,
and keeping the research objectives in mind, the
following five hypotheses have been formulated and
these are shown in Table 3 below.
Table 3 :
Description of hypotheses
S. No.
Hypothesis
1)
Ho1:
Overall sustainability performance of company has no impact on its financial performance.
Ha1: Overall sustainability performance of company has an impact on its financial performance.
2)
Ho2: Community-related performance of company has no impact on its financial performance.
Ha2: Community-related performance of company has an impact on its financial performance.
3)
Ho3: Employees-related performance of company has no impact on its financial performance.
Ha3: Employees-related performance of company has an impact on its financial performance.
4)
Ho4: Environment-related performance of company has no impact on its financial performance.
Ha4: Environment-related performance of company has an impact on its financial performance.
5)
Ho5: Governance-related performance of company has no impact on its financial performance.
Ha5: Governance-related performance of company has an impact on its financial performance.
VII.
Research Methodology
The present study makes use of secondary
data. The average data over a period of two years from
FY 2010-11 to FY 2011-12 has been used to enable
cross-sectional analysis. A series of statistical tools like
–
multiple regression, correlation, t-test and F-test have
been used to analyze the data and to investigate the
impact of corporate sustainability on financial
performance.
a)
Sample Description
The following criteria have been used to select
companies eligible to be included in sample:
Companies continuously included in S&P CNX Nifty 50 Index
from 1st April, 2010 to 31st March, 2012 =
45
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Less: Banks and Financial Companies = 08
Less: Companies whose annual financial data as on 31
st
March is not available =05
Less: Companies whose sustainability data for both FYs are
not available = 01
Less: Companies not publish Sustainability Report as per GRI
guidelines = 11
Total Companies Eligible for Sample = 20
Thus, the final sample comprises of non-
financial companies; listed on the NSE; which have
continuously been included in NIFTY 50 Index during 1st
April, 2010 to 31st March, 2012, with easily available
financial and sustainability data, and which issue
sustainability report as per GRI guidelines. The 20
sample companies and the industry to which they
belong are shown below in Table 4.
Table 4
:
Sample description
S.N.
Sample Companies
Industry
1
Bharat Petroleum
Corporation Ltd. (BPCL)
Petroleum Refineries
2
Bharti Airtel Ltd.
Telecommunications
3
GAIL (India) Ltd.
Natural Gas Distribution
4
Hindalco Industries Ltd.
Mining (Except Oil & Gas)
5
Hindustan Unilever Ltd.
Food Products
6
Infosys Ltd.
IT & Network Services
7
ITC
Conglomerates
(FMCG,
Hotels and Agri Business)
8
Larsen & Toubro Ltd.
Heavy & Civil Engineering
Construction
9
Mahindra & Mahindra Ltd.
Motor Vehicle
Manufacturing
10
Maruti Suzuki India Ltd.
Motor Vehicle
Manufacturing
11
NTPC Ltd.
Electric & Gas Utilities
12
Oil & Natural Gas
Corporation Ltd. (ONGC)
Oil & Gas Extraction
13
Power Grid Corporation of
India Ltd.
Electric & Gas Utilities
14
Reliance Industries Ltd.
Chemicals, Plastics &
Rubber Products
Manufacturing
15
Sterlite Industries (India)
Ltd.
Mining (Except Oil & Gas)
16
Tata Consultancy Services
Ltd. (TCS)
IT & Network Services
17
Tata Motors Ltd.
Motor Vehicle
Manufacturing
18
Tata Power Co. Ltd.
Electric & Gas Utilities
19
Tata Steel Ltd.
Steel Manufacturing
20
Wipro Ltd.
IT & Network Services
b)
Variable Description and Data Sources
Five Accounting-based measures, namely,
Return on Assets (ROA), Return on Equity (ROE), Return
on Capital Employed (ROCE), Profit before Tax (PBT),
and a growth variable -
Growth in Total Assets (GTA),
have been used as proxies for financial performance.
Accounting-based measures have been used because
the audited accounting data is likely to be authentic and
credible and is not influenced by market perceptions or
speculations, and is thus considered less noisy in
returns, share prices, etc. (Lopez et al., 2007). Overall
Sustainability Rating (OSR), Community Performance
Rating (COM), Employees Performance Rating (EMP),
Environmental Performance Rating (ENV) and
Governance Performance Rating (GOV)
have been used
as proxies for sustainability performance of company.
The financial data has been obtained from
company’s website, audited financial statements,
annual reports and Moneycontrol.com. Corporate
Sustainability, governance, community, employee and
environment ratings data have been obtained from
“CSRHub database”, which claims to be world’s largest
corporate sustainability ratings database and principally
adheres to GRI guidelines.
Further, we controlled for size of firm because
larger firms are
likely to have higher profitability as they
have greater resources for investing in profitable
ventures. We use natural log of total assets as proxy for
firm size.
c)
Research Model
This research paper tests two different models
using Multiple Regression Analysis as statistical tool in
IBM SPSS Statistics software, in order to examine and
analyze the relationship between corporate sustainability
and financial performance. These models are described
in the following section.
i.
First Model
The first model intends
to examine the impact of
overall sustainability rating of company (independent
variable -
OSR) on the financial performance of firm
(dependent variables –
ROA, ROE, ROCE, PBT, and
GTA); while controlling for size of firm (SIZE). Five
regression equations shall be tested in this model,
which are as follows:
ROA = c + b1.OSR + b2.SIZE
(1)
ROE = c + b1.OSR + b2.SIZE
(2)
ROCE = c + b1.OSR + b2.SIZE
(3)
PBT = c + b1.OSR + b2.SIZE
(4)
GTA = c + b1.OSR + b2.SIZE
(5)
ii.
Second Model
The second model aims at examining
separately the impact of four major components of
corporate sustainability (Community, Employees,
Environment and Governance) on company’s financial
performance, while controlling for size of firm. The five
regression equations to be tested in this model are as
follows:
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
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comparison to market based indicators like stock
ROA = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE
(6)
ROE = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE
(7)
ROCE = c + b1.COM + b2.EMP + b3.ENV + b4.GOV
+ b5.SIZE (8)
PBT = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE (9)
GTA = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE (10)
VIII.
Data analysis and Results
The descriptive statistics for various variables used in
this study have been shown in Table 5 below.
Table 5 :
Descriptive statistics
From Table 5, we observe that the mean value
of Overall Sustainability Rating is only 52.95% and
ratings along four components of sustainability are also
approximately 50%. This highlights that Indian
companies need to take strong steps towards
sustainability to improve their sustainability performance
ratings.
Table 6 :
Summarized results of first model
Particulars
R
R
2
Adjusted
R
2
F
Significance
of F
Beta
Coefficient for
OSR
(b
1
)
p-value
ROA
.420
.176
.079
1.817
.193
.316
.381
ROE
.568
.323
.243
4.050
.036
-.607
.220
ROCE
.520
.270
.184
3.148
.069
-.441
.548
PBT
.671
.451
.386
6.973
.006
30.584
.887
GTA
.436
.190
.095
1.992
.167
.155
.571
From Table 6, we observe that all p-values are
more than .05, while most of beta values (b1) are
positive. Thus, Overall Sustainability Rating (OSR) has
positive but insignificant impact on financial
performance of company. Thus, we accept the first null
hypothesis Ho1 and reject the first alternate hypothesis
Ha1.
Variables
N
Mean
Median
Std.
Deviation
ROA (%)
20
15.923
12.219
11.036
ROE (%)
20
19.44011
14.092
16.517
ROCE (%)
20
25.663
16.790
24.029
PBT (in Rs.
Cr.)
20
8125.417
5556.093
8168.097
GTA (%)
20
13.66740
14.40400
8.497
OSR (%)
20
52.95
54
7.467
COM (%)
20
53.75
54
8.916
EMP (%)
20
55.825
55.75
6.885
ENV (%)
20
53
54.25
8.382
GOV
(%)
20
49.85
50.75
8.604
SIZE
(Natural
Log of Total
Assets)
20
10.80472
10.67852
0.802
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
Companies
© 2013 Global Journals Inc. (US)
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The results of first model regarding impact of
overall sustainability rating on financial performance of
company have been summarized in Table 6 below.
The results of second model regarding impact
of four components of sustainability on financial
performance of company have been summarized in
Table 7 below.
Table 7 : Summarized results of second model
Particulars
ROA
ROE
ROCE
PBT
GTA
R
.730
.769
.760
.826
.690
R
2
.533
.592
.577
.683
.475
Adjusted R
2
.367
.446
.426
.570
.288
F
3.201
4.064
3.825
6.036
2.538
Significance of F
.039
.017
.021
.004
.078
Beta Coefficient for COM (b
1
)
1.182
1.106
1.833
260.220
.314
Beta Coefficient for EMP (b
2
)
-1.526
-1.684
-2.901
-886.278
.154
Beta Coefficient for ENV (b
3
)
-1.228
-2.483
-3.337
-464.416
.871
Beta Coefficient
for GOV (b
4
)
1.381
1.926
3.026
827.701
-1.073
p-value for COM
.072*
.214
.167
.494
.537
p-value for EMP
.011**
.036**
.017**
.014**
.722
p-value for ENV
.066*
.012**
.020**
.237
.106
p-value for GOV
.024**
.025**
.018**
.027**
.031**
Note:
**. Significant @ 5% level of significance
*. Significant @ 10% level of significance
The
following conclusions can be inferred from
analysis of Table 7:
•
Community-related performance has insignificant
positive relationship with company’s financial
performance. Hence, the second alternate
hypothesis (Ha2) is rejected.
•
Employee-related performance has significant
negative relationship with company’s financial
performance. Hence, the third alternate hypothesis
(Ha3) is accepted.
•
Environment-related performance has significant
negative relationship with company’s financial
performance. Hence, the fourth alternate
hypothesis (Ha4) is accepted.
•
Governance-related performance has significant
positive relationship with company’s financial
performance. Hence, the fifth alternate hypothesis
(Ha5) is accepted.
The results of Hypothesis Testing are shown below in
Table 8.
Table 8 :
Results of hypothesis testing
Hypothesis (Alternate)
Accept/Reject
Ha1
Reject
Ha2
Reject
Ha3
Accept
Ha4
Accept
Ha5
Accept
IX.
Conclusions and Discussion
The statistical results reveal that corporate
sustainability as a whole has no significant influence on
financial performance. Further, corporate sustainability
influences some of the financial performance measures
positively (ROA, PBT & GTA), while others
negatively
(ROE and ROCE). Our result confirms to the findings of
many existing researches which argue that corporate
sustainability has no significant association with firm
performance (Buys et al., 2011; Manescu, 2011), no
significant impact in short-term (Adams et al., 2012) and
that the varying effects of different dimensions of
sustainability may negate and offset each other leading
to no significant influence on financial performance
(Galema et al., 2008; Statman & Glushkov, 2009;
Brammer et al., 2006).
Further investigation of the impact of each
component of sustainability separately on company’s
financial performance provides clearer results. We find
that all components except Community, i.e., Employees,
Environment and Governance, have significant but
varying association with financial performance.
Governance and Community dimensions have positive
influence, while Employees and Environment
dimensions have negative influence on financial
performance.
The present study also reveals insignificant
positive association between corporate sustainability
and growth of firm. This finding is in consonance with
Kapoor and Sandhu (2010). This may be due to the
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
Companies
© 2013 Global Journals Inc. (US)
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reason that growth of a firm is dependent on other
factors like product quality, price, marketing strategy,
etc. apart from sustainability activities performed by firm.
The control variable (firm size) comes out to be
significant for financial performance. This result is in
consonance with our expectation and with those
observed by Guindry and Patten (2010).
Our research result that sustainability
performance along employees, environment and
governance dimensions does significantly influence
company’s financial performance may support
company’s decision to improve its performance in
managing sustainability. Companies should understand
that improving sustainability performance is as important
as improving the financial performance. A company
needs to be concerned towards the needs of future
generations in running the business, in order to ensure
its survival in the long-run.
X.
Limitations of
Study
The present study is subject to certain
limitations. Firstly, the sample size is small (i.e. 20
companies). Secondly, the time frame of research is
short (i.e. 2 years). Thirdly, market-based measures of
financial performance are not considered in this paper.
Lastly, the study ignores control variables like age of
firm, growth of firm, capital intensity, leverage, risk, R&D
intensity, industry type, etc. that may have significant
influence on this relationship.
The results of study should be interpreted in
light of these limitations and the future researchers
should attempt to overcome them while doing further
research in this area.
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doc_632518778.pdf
Sustainability is a crucial issue for corporate world today. The interest of investors in Socially Responsible Investment (SRI) has grown substantially over last decade. Thus, sustainability has potential to influence company performance.
© 2013. Priyanka Aggarwal. This is a research/review paper, distributed under the terms of the Creative Commons Attribution-
Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-commercial use,
distribution, and reproduction in any medium, provided the original work is properly cited.
Global Journal of Management and Business Research
Finance
Volume 13 Issue 11 Version 1.0 Year 2013
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853
Impact of Sustainability Performance of Company on its
Financial Performance: A Study of Listed Indian Companies
By Priyanka Aggarwal
Keywords: Corporate Sustainability, Financial Performance, Corporate Social Responsibility
(CSR), Sustainability Reporting, Socially Responsible Investment (SRI), Global Reporting Initiative
(GRI).
GJMBR-C Classification :
ImpactofSustainabilityPerformanceofCompanyonitsFinancialPerformanceAStudyofListedIndianCompanies
Strictly as per the compliance and regulations of:
University of Delhi, India
FOR Code:150304 JEL Code: D92, F65
Abstract- Sustainability is a crucial issue for corporate world today. The interest of investors in
Socially Responsible Investment (SRI) has grown substantially over last decade. Thus,
sustainability has potential to influence company performance. The purpose of this paper is to
find “whether sustainable companies are more profitable”. Various researches were conducted in
past for examining this relationship. Results, however, have been mixed and inconclusive.
Moreover, most of the studies have been conducted in context of developed countries.
Impact of Sustainability Performance of
Company on its Financial Performance: A
Study of Listed Indian Companies
Priyanka Aggarwal
Abstract- Sustainability is a crucial issue for corporate world
today. The interest of investors in Socially Responsible
Investment (SRI) has grown substantially over last decade.
Thus, sustainability has potential to influence company
performance. The purpose of this paper is to find “whether
sustainable companies are more profitable”. Various
researches were conducted in past for examining this
relationship. Results, however, have been mixed and
inconclusive. Moreover, most of the studies have been
conducted in context of developed countries. The purpose of
this paper is to examine impact of sustainability rating of
company on its financial performance in an Indian context
using secondary data. We also separately analyze impact of
four key components of sustainability (i.e. Community,
Employees, Environment and Governance) on financial
performance. We find no significant association between
overall sustainability rating and financial performance.
However, further analysis reveals that four components of
sustainability have significant but varying impact on financial
performance.
Keywords: corporate sustainability, financial
performance, corporate social responsibility (CSR),
sustainability reporting, socially responsible investment
(SRI), global reporting initiative (GRI).
I. Introduction
ustainability is currently a burning issue and a
major cause of concern across the globe. At the
World Commission on Environment and
Development (WCED), Brundtland (1987) defined
sustainability as – “meeting the needs of the present
generation without compromising the ability of future
generations to meet their own needs.” The interest of
investors in company’s non-financial performance has
grown significantly over the past few years (Ernst &
Young, 2009). In the wake of increased regulations and
growth in level of awareness of stakeholders, the
concept of corporate sustainability has been assuming
great importance. World Business Council for
Sustainable Development (2002) defined Corporate
Sustainability as -
“the commitment of business to
contribute to sustainable economic development, and to
work with employees, their families, the local community
and society at large to improve their quality of life.”
Author:
Research Scholar, Department of Commerce, Delhi School of
Economics, University of Delhi, Delhi,
India
e-mail: [email protected]
Today, the firms should take accountability for
various beneficial and harmful impacts of their activities
on the overall society and environment in which they
exist. Moreover, the firms should make proper
disclosure of these impacts in an appropriate
sustainability report, which provides a detailed
description of their governance structure, stakeholder
engagement approach and triple bottom line
performance. Elkington (1998) developed the term ‘triple
bottom line’ to emphasize on three aspects -
people
(social), profits (economic) and planet (environmental).
Global Reporting Initiative (2011) defines Sustainability
Reporting as –
“the practice of measuring, disclosing,
and being accountable to internal and external
stakeholders for organizational performance towards the
goal of sustainable development.”
It is widely believed and suggested by
researchers that in today’s dynamic and complex
business environment, the corporate sustainability is
likely to influence corporate profitability and overall
performance. It lays a foundation for preserving and
enhancing value of firm. The firms reap plenty of
strategic benefits as a result of embedding sustainability
in their core strategies. These various benefits of
corporate sustainability are shown in Figure 1 below.
S
© 2013 Global Journals Inc. (US)
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Figure 1 : Benefits of corporate sustainability
Corporate Sustainability and its impact on
financial performance have emerged as important areas
for research in recent years. Various studies have been
performed over the last decade for examining this
relationship. However, the results have been mixed and
inconclusive. Moreover, most of the previous studies
have been conducted in the context of developed
countries (like US, Europe, UK, Australia, etc.).
Therefore, this paper attempts to analyze the impact of
overall sustainability and its four major components on
corporate financial performance in an Indian context.
II.
Objectives of Study
The primary objective of this paper is to find
“whether sustainable companies are more profitable or
not”. Some specific objectives have been formulated to
achieve this main object, which are as follows:
•
To provide an overview of the concept of corporate
sustainability and its various components.
•
To present various related theories establishing
relationship between corporate sustainability and
financial performance.
•
To provide literature review on the relationship
between corporate sustainability and corporate
financial performance.
•
To empirically analyze the impact of overall
sustainability rating of company on its financial
performance.
•
To examine and analyze separately the impact of
each of the four major components of sustainability,
i.e. Community, Employees, Environment
and
Governance on financial performance of company.
•
To analyze whether companies with higher
sustainability ratings are more profitable or not.
III.
Concept of Corporate Sustainability
As per the report by Mays (2003),‘Corporate
Sustainability’ means creating
long-term shareholder
value by embracing opportunities and managing risks
arising from social, environmental and economic
factors. The Mays Report also specified advantages of
corporate sustainability. Sustainable behavior adds
value to commercial endeavor and makes for good
business sense. It is specifically a helpful instrument to
manage corporate image. It helps in assessing the
capabilities and effectiveness of business administration
and management. It leads to shift in the organizational
focus from short-term to long-term goals. Transparency
is an essential element of corporate sustainability. It can
be assessed along various dimensions like: energy
efficiency, community relations, eco design, materials
efficiency, product recyclability, and employee relations.
The four major components of corporate sustainability
have been described in Table 1 below.
Impact of Sustainability Performance of Company on its Financial Performance: A Study of Listed Indian
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Table 1 :
Components of corporate sustainability
Source: CSRHub (www.csrhub.com)
IV.
Related Theory
There are three major theories, namely,
Legitimacy Theory, Stakeholder Theory and Agency
Theory, which suggest that companies should be
sustainable and should incorporate corporate
sustainability in their core strategic goals. The
companies should disclose
their sustainability
performance in a proper sustainability report. These
theories primarily suggest positive relationship between
corporate sustainability and company performance.
These theories are briefly shown in Figure 2 below.
Components
Description
1)
COMMUNITY
The
Community Component
covers the company’s commitment and
effectiveness within local, national and global community in which it
does business. It reflects company’s citizenship, charitable giving
and volunteerism. This component covers company’s human rights
record and treatment of its supply chain. It also covers the
environmental and social impacts of company’s products and
services, and development of sustainable products, processes and
technologies.
Human rights, supply chain, product
quality & safety, product sustainability,
community development, philanthropy.
2)
EMPLOYEES
The
Employees Component
includes disclosure of policies,
programs, and performance in diversity, labor-relations and labor-
rights, compensation, benefits, and employee training, health and
safety. It focuses on compliance with national laws and regulations,
fair treatment of all
employees, disclosure of workforce diversity data,
strong labor codes, comprehensive benefits, training and
development opportunities, and employee health and safety policies.
Diversity, labor rights, treatment of unions,
compensation, benefits, training, health,
worker safety
3)
ENVIRONMENT
The
Environment Component
data covers company’s interactions
with the environment at large, including use of natural resources, and
company’s impact on Earth’s ecosystems, compliance with
environmental regulations, leadership in addressing climate change,
energy-efficient operations, renewable energy, natural resource
conservation, pollution prevention programs, strategy towards
sustainable development and programs to engage stakeholders for
environmental improvement.
Environmental policy, environmental
reporting, waste management, resource
management, energy use, climate change
policies and performance.
4)
GOVERNANCE
The
Governance Component
covers disclosure of policies,
procedures, board independence and diversity, executive
compensation and evaluation of company’s culture of ethical
leadership and compliance. This component rates factors such as –
alignment of corporate policies and practices with sustainability
goals; transparency to stakeholders; integration of sustainability
principles from top down into day-to-day operations of company.
Governance focuses on how management is committed to
sustainability and corporate responsibility at all levels.
Leadership ethics, board composition,
executive compensation, transparency
and reporting, and stakeholder treatment.
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Figure 2 : Related theories
V.
Literature Review
Corporate sustainability and its impact on
financial performance have emerged as key areas for
research in recent years. Various research studies have
been performed over the last decade for examining this
relationship. However, the results have been
inconclusive, inconsistent, and often contradictory. It
ranges from positive (Greenwald, 2010; Eccles et al.,
2012; N. Burhan & Rahmanti, 2012; Khaveh et al., 2012;
de Klerk & de Villiers, 2012; Ngwakwe, 2009; Ameer &
Othman, 2012; Guindry & Patten, 2010; Schadewitz &
Niskala, 2010) to negative (Lopez et al., 2007; Detre &
Gunderson, 2011) to mixed (Jones, 2005; Brammer et
al., 2006; Mohd Taib & Ameer, 2012; Manescu, 2011;
Semenova et al., 2009) and even to insignificant
relationship (Van de Velde et al., 2005; Buys et al., 2011;
Adams et al., 2012; Venanzi, 2012; Humphrey et al.,
2012). The researchers use various types of measures
for financial performance -
Accounting -
based
measures such as ROA, ROE, PBT, etc. and Market-
based measures such as Stock Returns,
Share Prices,
MVA, etc. The various measures for firm’s Sustainability
Performance used by researchers are –
GRI-based
Disclosure Index Scores, Existence of firms’ GRI
Sustainability Reports, External Sustainability Ratings
(from KLD, Vigeo, or Asset 4 database), etc. The review
of literature has been presented in Table 2 given below.
Table 2 : Relationship between corporate sustainability and financial performance
S.No.
Study & Country
Measure of Corporate
Sustainability
Measure of Financial
Performance
Relationship
1
Jones (2005)
-
Australia
GRI Sustainability Reporting
Index Score
Market adjusted
returns; other financial
ratios; and financial
distress probability
scores.
Mixed Results with
different measures
of company
performance
2
Van de Velde et al.
(2005)
-
Europe
Vigeo Sustainability Scores on -
Human Resources, Environment,
Customers & Suppliers,
Community & Society, and
Average Monthly
Returns on portfolio
Positive, but not
significant
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- UK
Composite/Aggregate
Sustainability Score from EIRIS
database
Stock Returns Negative
4
Moneva and Ortas
(2008)
–
Europe
Disclosures in GRI Sustainability
Report
Share Price Returns
Not Significant
5
Buys et al. (2011)
-
South Africa
Submission of Sustainability
reports to GRI
ROA,
ROE, EVA and
MVA
Slightly positive,
but not significant
6
Dhaliwal et al. (2011)
–
US
KLD Ratings
Cost of Equity Capital
Negative
7
Ameer and Othman
(2012)
-
Developed
Countries
Scores on 4 Indices –
Environment, Diversity,
Community and Ethics
Sales revenue growth
(SRG), ROA, PBT and
CFO
Positive & bi-
directional
relationship
8
Bayoud et al. (2012)
-
Libya
Disclosure of Environmental,
Consumer, Community
Involvement, Employee
Performance
ROA, Revenue, ROI
Positive
9
Eccles et al. (2012)
-
US
ESG disclosure scores from
Asset4, Bloomberg and SAM
database
Stock returns, ROA,
ROE
Positive
10
N. Burhan and
Rahmanti (2012)
-
Indonesia
GRI based Disclosure Index
Score
ROA
Positive
11
Venanzi (2012)
-
Europe
Social ratings on community,
corporate governance,
customers, employees,
environment, suppliers, business
ethics, & controversies.
ROE, ROA, ROS.
Not Significant
VI.
Hypotheses
Based on
theoretical arguments and review of literature,
and keeping the research objectives in mind, the
following five hypotheses have been formulated and
these are shown in Table 3 below.
Table 3 :
Description of hypotheses
S. No.
Hypothesis
1)
Ho1:
Overall sustainability performance of company has no impact on its financial performance.
Ha1: Overall sustainability performance of company has an impact on its financial performance.
2)
Ho2: Community-related performance of company has no impact on its financial performance.
Ha2: Community-related performance of company has an impact on its financial performance.
3)
Ho3: Employees-related performance of company has no impact on its financial performance.
Ha3: Employees-related performance of company has an impact on its financial performance.
4)
Ho4: Environment-related performance of company has no impact on its financial performance.
Ha4: Environment-related performance of company has an impact on its financial performance.
5)
Ho5: Governance-related performance of company has no impact on its financial performance.
Ha5: Governance-related performance of company has an impact on its financial performance.
VII.
Research Methodology
The present study makes use of secondary
data. The average data over a period of two years from
FY 2010-11 to FY 2011-12 has been used to enable
cross-sectional analysis. A series of statistical tools like
–
multiple regression, correlation, t-test and F-test have
been used to analyze the data and to investigate the
impact of corporate sustainability on financial
performance.
a)
Sample Description
The following criteria have been used to select
companies eligible to be included in sample:
Companies continuously included in S&P CNX Nifty 50 Index
from 1st April, 2010 to 31st March, 2012 =
45
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Less: Banks and Financial Companies = 08
Less: Companies whose annual financial data as on 31
st
March is not available =05
Less: Companies whose sustainability data for both FYs are
not available = 01
Less: Companies not publish Sustainability Report as per GRI
guidelines = 11
Total Companies Eligible for Sample = 20
Thus, the final sample comprises of non-
financial companies; listed on the NSE; which have
continuously been included in NIFTY 50 Index during 1st
April, 2010 to 31st March, 2012, with easily available
financial and sustainability data, and which issue
sustainability report as per GRI guidelines. The 20
sample companies and the industry to which they
belong are shown below in Table 4.
Table 4
:
Sample description
S.N.
Sample Companies
Industry
1
Bharat Petroleum
Corporation Ltd. (BPCL)
Petroleum Refineries
2
Bharti Airtel Ltd.
Telecommunications
3
GAIL (India) Ltd.
Natural Gas Distribution
4
Hindalco Industries Ltd.
Mining (Except Oil & Gas)
5
Hindustan Unilever Ltd.
Food Products
6
Infosys Ltd.
IT & Network Services
7
ITC
Conglomerates
(FMCG,
Hotels and Agri Business)
8
Larsen & Toubro Ltd.
Heavy & Civil Engineering
Construction
9
Mahindra & Mahindra Ltd.
Motor Vehicle
Manufacturing
10
Maruti Suzuki India Ltd.
Motor Vehicle
Manufacturing
11
NTPC Ltd.
Electric & Gas Utilities
12
Oil & Natural Gas
Corporation Ltd. (ONGC)
Oil & Gas Extraction
13
Power Grid Corporation of
India Ltd.
Electric & Gas Utilities
14
Reliance Industries Ltd.
Chemicals, Plastics &
Rubber Products
Manufacturing
15
Sterlite Industries (India)
Ltd.
Mining (Except Oil & Gas)
16
Tata Consultancy Services
Ltd. (TCS)
IT & Network Services
17
Tata Motors Ltd.
Motor Vehicle
Manufacturing
18
Tata Power Co. Ltd.
Electric & Gas Utilities
19
Tata Steel Ltd.
Steel Manufacturing
20
Wipro Ltd.
IT & Network Services
b)
Variable Description and Data Sources
Five Accounting-based measures, namely,
Return on Assets (ROA), Return on Equity (ROE), Return
on Capital Employed (ROCE), Profit before Tax (PBT),
and a growth variable -
Growth in Total Assets (GTA),
have been used as proxies for financial performance.
Accounting-based measures have been used because
the audited accounting data is likely to be authentic and
credible and is not influenced by market perceptions or
speculations, and is thus considered less noisy in
returns, share prices, etc. (Lopez et al., 2007). Overall
Sustainability Rating (OSR), Community Performance
Rating (COM), Employees Performance Rating (EMP),
Environmental Performance Rating (ENV) and
Governance Performance Rating (GOV)
have been used
as proxies for sustainability performance of company.
The financial data has been obtained from
company’s website, audited financial statements,
annual reports and Moneycontrol.com. Corporate
Sustainability, governance, community, employee and
environment ratings data have been obtained from
“CSRHub database”, which claims to be world’s largest
corporate sustainability ratings database and principally
adheres to GRI guidelines.
Further, we controlled for size of firm because
larger firms are
likely to have higher profitability as they
have greater resources for investing in profitable
ventures. We use natural log of total assets as proxy for
firm size.
c)
Research Model
This research paper tests two different models
using Multiple Regression Analysis as statistical tool in
IBM SPSS Statistics software, in order to examine and
analyze the relationship between corporate sustainability
and financial performance. These models are described
in the following section.
i.
First Model
The first model intends
to examine the impact of
overall sustainability rating of company (independent
variable -
OSR) on the financial performance of firm
(dependent variables –
ROA, ROE, ROCE, PBT, and
GTA); while controlling for size of firm (SIZE). Five
regression equations shall be tested in this model,
which are as follows:
ROA = c + b1.OSR + b2.SIZE
(1)
ROE = c + b1.OSR + b2.SIZE
(2)
ROCE = c + b1.OSR + b2.SIZE
(3)
PBT = c + b1.OSR + b2.SIZE
(4)
GTA = c + b1.OSR + b2.SIZE
(5)
ii.
Second Model
The second model aims at examining
separately the impact of four major components of
corporate sustainability (Community, Employees,
Environment and Governance) on company’s financial
performance, while controlling for size of firm. The five
regression equations to be tested in this model are as
follows:
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comparison to market based indicators like stock
ROA = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE
(6)
ROE = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE
(7)
ROCE = c + b1.COM + b2.EMP + b3.ENV + b4.GOV
+ b5.SIZE (8)
PBT = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE (9)
GTA = c + b1.COM + b2.EMP + b3.ENV + b4.GOV +
b5.SIZE (10)
VIII.
Data analysis and Results
The descriptive statistics for various variables used in
this study have been shown in Table 5 below.
Table 5 :
Descriptive statistics
From Table 5, we observe that the mean value
of Overall Sustainability Rating is only 52.95% and
ratings along four components of sustainability are also
approximately 50%. This highlights that Indian
companies need to take strong steps towards
sustainability to improve their sustainability performance
ratings.
Table 6 :
Summarized results of first model
Particulars
R
R
2
Adjusted
R
2
F
Significance
of F
Beta
Coefficient for
OSR
(b
1
)
p-value
ROA
.420
.176
.079
1.817
.193
.316
.381
ROE
.568
.323
.243
4.050
.036
-.607
.220
ROCE
.520
.270
.184
3.148
.069
-.441
.548
PBT
.671
.451
.386
6.973
.006
30.584
.887
GTA
.436
.190
.095
1.992
.167
.155
.571
From Table 6, we observe that all p-values are
more than .05, while most of beta values (b1) are
positive. Thus, Overall Sustainability Rating (OSR) has
positive but insignificant impact on financial
performance of company. Thus, we accept the first null
hypothesis Ho1 and reject the first alternate hypothesis
Ha1.
Variables
N
Mean
Median
Std.
Deviation
ROA (%)
20
15.923
12.219
11.036
ROE (%)
20
19.44011
14.092
16.517
ROCE (%)
20
25.663
16.790
24.029
PBT (in Rs.
Cr.)
20
8125.417
5556.093
8168.097
GTA (%)
20
13.66740
14.40400
8.497
OSR (%)
20
52.95
54
7.467
COM (%)
20
53.75
54
8.916
EMP (%)
20
55.825
55.75
6.885
ENV (%)
20
53
54.25
8.382
GOV
(%)
20
49.85
50.75
8.604
SIZE
(Natural
Log of Total
Assets)
20
10.80472
10.67852
0.802
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The results of first model regarding impact of
overall sustainability rating on financial performance of
company have been summarized in Table 6 below.
The results of second model regarding impact
of four components of sustainability on financial
performance of company have been summarized in
Table 7 below.
Table 7 : Summarized results of second model
Particulars
ROA
ROE
ROCE
PBT
GTA
R
.730
.769
.760
.826
.690
R
2
.533
.592
.577
.683
.475
Adjusted R
2
.367
.446
.426
.570
.288
F
3.201
4.064
3.825
6.036
2.538
Significance of F
.039
.017
.021
.004
.078
Beta Coefficient for COM (b
1
)
1.182
1.106
1.833
260.220
.314
Beta Coefficient for EMP (b
2
)
-1.526
-1.684
-2.901
-886.278
.154
Beta Coefficient for ENV (b
3
)
-1.228
-2.483
-3.337
-464.416
.871
Beta Coefficient
for GOV (b
4
)
1.381
1.926
3.026
827.701
-1.073
p-value for COM
.072*
.214
.167
.494
.537
p-value for EMP
.011**
.036**
.017**
.014**
.722
p-value for ENV
.066*
.012**
.020**
.237
.106
p-value for GOV
.024**
.025**
.018**
.027**
.031**
Note:
**. Significant @ 5% level of significance
*. Significant @ 10% level of significance
The
following conclusions can be inferred from
analysis of Table 7:
•
Community-related performance has insignificant
positive relationship with company’s financial
performance. Hence, the second alternate
hypothesis (Ha2) is rejected.
•
Employee-related performance has significant
negative relationship with company’s financial
performance. Hence, the third alternate hypothesis
(Ha3) is accepted.
•
Environment-related performance has significant
negative relationship with company’s financial
performance. Hence, the fourth alternate
hypothesis (Ha4) is accepted.
•
Governance-related performance has significant
positive relationship with company’s financial
performance. Hence, the fifth alternate hypothesis
(Ha5) is accepted.
The results of Hypothesis Testing are shown below in
Table 8.
Table 8 :
Results of hypothesis testing
Hypothesis (Alternate)
Accept/Reject
Ha1
Reject
Ha2
Reject
Ha3
Accept
Ha4
Accept
Ha5
Accept
IX.
Conclusions and Discussion
The statistical results reveal that corporate
sustainability as a whole has no significant influence on
financial performance. Further, corporate sustainability
influences some of the financial performance measures
positively (ROA, PBT & GTA), while others
negatively
(ROE and ROCE). Our result confirms to the findings of
many existing researches which argue that corporate
sustainability has no significant association with firm
performance (Buys et al., 2011; Manescu, 2011), no
significant impact in short-term (Adams et al., 2012) and
that the varying effects of different dimensions of
sustainability may negate and offset each other leading
to no significant influence on financial performance
(Galema et al., 2008; Statman & Glushkov, 2009;
Brammer et al., 2006).
Further investigation of the impact of each
component of sustainability separately on company’s
financial performance provides clearer results. We find
that all components except Community, i.e., Employees,
Environment and Governance, have significant but
varying association with financial performance.
Governance and Community dimensions have positive
influence, while Employees and Environment
dimensions have negative influence on financial
performance.
The present study also reveals insignificant
positive association between corporate sustainability
and growth of firm. This finding is in consonance with
Kapoor and Sandhu (2010). This may be due to the
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reason that growth of a firm is dependent on other
factors like product quality, price, marketing strategy,
etc. apart from sustainability activities performed by firm.
The control variable (firm size) comes out to be
significant for financial performance. This result is in
consonance with our expectation and with those
observed by Guindry and Patten (2010).
Our research result that sustainability
performance along employees, environment and
governance dimensions does significantly influence
company’s financial performance may support
company’s decision to improve its performance in
managing sustainability. Companies should understand
that improving sustainability performance is as important
as improving the financial performance. A company
needs to be concerned towards the needs of future
generations in running the business, in order to ensure
its survival in the long-run.
X.
Limitations of
Study
The present study is subject to certain
limitations. Firstly, the sample size is small (i.e. 20
companies). Secondly, the time frame of research is
short (i.e. 2 years). Thirdly, market-based measures of
financial performance are not considered in this paper.
Lastly, the study ignores control variables like age of
firm, growth of firm, capital intensity, leverage, risk, R&D
intensity, industry type, etc. that may have significant
influence on this relationship.
The results of study should be interpreted in
light of these limitations and the future researchers
should attempt to overcome them while doing further
research in this area.
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