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Article

Exploring Sustainable Investments: How They Drive Firm Performance in Indian Private and Publicly Listed Companies

by
Mohd Yousuf Javed
1,
Mohammad Hasan
2,
Mohd Aqil
1,
Mohd Ziaur Rehman
3 and
S. A. Atif Salar
4,*
1
Department of Business Administration, Aligarh Muslim University, Kishanganj Centre, Kishanganj 855107, Bihar, India
2
IILM Institute of Higher Education, Lucknow 226010, Uttar Pradesh, India
3
Department of Finance, College of Business Administration, King Saud University, P.O. Box 71115, Riyadh 11587, Saudi Arabia
4
Al Barkaat Institute of Management Studies, Aligarh 202122, Affiliated to Dr. A.P.J. Abdul Kalam Technical University, Lucknow 226010, Uttar Pradesh, India
*
Author to whom correspondence should be addressed.
Sustainability 2024, 16(16), 7240; https://doi.org/10.3390/su16167240
Submission received: 3 July 2024 / Revised: 5 August 2024 / Accepted: 7 August 2024 / Published: 22 August 2024
Versions Notes

Abstract

:
This research aims to present a holistic view of sustainable investments on firm performance by exploring the dimensions of sustainable investments and firm performance concerning Indian private and publicly listed companies. Panel data regression has been used to explore the relationship between sustainable investment and firm performance. The data of 75 BSE-listed companies has been extracted from Prowess IQ from 2012–2022.Two panels based on different ownership structures were created to observe the impact of sustainable investment and firm performance. The findings of this study indicate that sustainable investments positively impact firm performance in private ownership but negatively impact the firm’s performance in public ownership. The study provides an extensive and holistic view of sustainable investments in Indian companies listed in the BSE, which can be helpful for researchers, professionals, and policymakers in the field. The findings of this research contribute to the solutions to socio-economic challenges and support sustainable development goals through sustainable investments. This research is one of the first attempts to provide a holistic view of sustainable investments by including various aspects of sustainability and firm performance in Indian listed companies and ownership.

1. Introduction

Sustainability is a profound concept in business that transcends the pursuit of profit and shareholder value. It is a journey towards creating a delicate equilibrium among economic prosperity, environmental stewardship, and social responsibility [1]. Sustainability is about ensuring that the needs of the present generation are met without jeopardizing the future generations’ ability to meet their own [2]. This comprehensive approach places paramount importance on creating value for all stakeholders—employees, society, or the natural world—instead of focusing on the bottom line. However, navigating the path of sustainability is not without its challenges. Implementing sustainability initiatives requires overcoming obstacles such as employee education and empowerment [3]. The core objective for businesses embracing sustainability is to strike a balance, minimizing their environmental impact, maintaining their social responsibility, and ensuring their long-term economic viability [4].
This contentious relationship between sustainability and financial performance is an ongoing debate, with some contending that it is contingent on the industry [5]. Nevertheless, what is undeniable is the transformative role sustainability initiatives play in shaping the business landscape. Sustainability, in its all-encompassing embrace, extends across various domains. It encompasses corporate sustainability, supply chain sustainability, and sustainability context, often marked by many goals, ambiguity, and context dominance. This integrated approach is an imperative driver for achieving the Sustainable Development Goals [6]. Measuring and reporting sustainability performance is crucial. It involves an array of indicators, such as environmental, social, and governance performance (ESGEP), that serve as the guiding stars in the pursuit of sustainability [7].
To chart progress on this journey, the Dow Jones Sustainability Index and the Eco-ratio analysis facilitate the assessment of sustainability performance and its connection with conventional business performance [8]. Across the financial sector, sustainability represents an effort to ensure the system’s long-term health, effectiveness, and profitability, all while considering the economic, social, and environmental facets [9]. Furthermore, sustainability transcends these boundaries, encompassing a diverse set of dimensions. It spans the Dow Jones Sustainability Index (DJSI), Global Compact (GC), Global Reporting Initiative (GRI), Corporate Social Responsibility Disclosure (CSRD), Corporate Social Responsibility Ranking (RANK), and Sustainable Growth Rate (RATE) [10]. The journey towards sustainability is an ongoing narrative, a story we all contribute to, driven by the collective understanding that by preserving our environment, nurturing our communities, securing economic resilience, and managing sustainability performance, we are forging a brighter, more sustainable future for all. In the quest for sustainability, sustainable investment is paramount. It aligns financial goals with sustainability objectives, encouraging responsible resource management and social equity.
By fostering the corporate adoption of sustainable investments and driving innovation in sustainable technologies, it plays a critical role in addressing global challenges such as climate change and social inequality [10]. It is rooted in the broader concept of sustainability, as it integrates ESG factors with financial returns.
This approach acknowledges the role of businesses in addressing global challenges and promotes sustainable investments like emissions reduction, diversity, and ethical conduct [3]. With its transformative nature prioritizing environmental, social, and governance (ESG) factors alongside financial returns [8], sustainable investment involves supporting businesses committed to sustainable investments, such as emissions reduction and diversity and inclusion [3]. Strategies like socially responsible investing (SRI), impact investing, and ESG integration [10] align financial objectives with sustainability goals, contributing to a more equitable future. Research reveals that companies with strong ESG practices exhibit superior long-term financial performance [11], underscoring the growing significance of ESG factors in financial decision-making and the collective endeavour toward a more sustainable and equitable future through responsible investment.
This study aims to understand the impact of sustainable investments on firm performance. The study explores two different ownership structures, namely private and publicly owned companies; this aspect serves as the study’s novelty. In the Indian context, this study has a vital role, as previous studies have not explored such a model of sustainability. The study’s contribution can be classified into two categories; first, in the light of academics, the study provides a holistic view of the impact of sustainable investments on firm performance. The academic world can identify the various practices of sustainability and financial performance. Secondly, the study helps policymakers formulate strategies to uplift sustainable investments and improve firm performance.

2. Theoretical Foundation

After defining sustainability and sustainable investments in the introduction, we explored the dimensions of sustainable investments and firm performance. This section of the paper explores the different studies conducted by previous authors. A few of them are elaborated on below.

2.1. Sustainable Investment and Sustainable Practices

Expanding on sustainability, Ref. [12] explored the multifaceted nature of corporate sustainability beyond the confines of the traditional triple bottom line. This study delved into the implications of sustainable resource management, assessing how companies influence society and the environment while efficiently using resources. Utilizing the “topics” theory, the researchers made a striking observation: companies must prioritise environmental efficiency and societal well-being, particularly within the resource-scarce context of the Chinese car industry. Mining for natural resources and its consequences were the subject of investigation in the study by [13] spanning two decades in China, from 2001 to 2020. This research dissected how resource mining affects China’s economy, environment, and sustainability. The results painted a nuanced picture: while resource extraction bolstered the economy, it simultaneously harmed the environment. Education, innovation, and eco-friendly approaches emerged as mitigating factors. Education and innovative green ideas had the potential to temper the adverse effects of resource mining, transforming a potential resource curse into a blessing. Shifting our focus to governance and policy, Ref. [14] explored the governance dynamics and its influence on sustainable economic growth in Saudi Arabia, with a particular emphasis on the ‘Vision 2030’ initiative. The researchers posited a counterintuitive notion through rigorous statistical methods: good governance might decelerate economic growth. However, citizen participation, a robust rule of law, and effective anti-corruption measures offset this slowdown, which collectively contributed to sustainable economic progress.
The fusion of artificial intelligence and natural resources took centre stage in the research conducted by [15] spanning four decades, from 1981 to 2021, within the context of China. Their inquiry extended to additional variables, including interest rates, inflation, trade openness, and government spending. The findings were illuminating: the combination of AI and sustainable resource management appeared to fuel economic growth in China over this period, while high interest rates and inflation were observed to have detrimental effects on both short-term and long-term financial prospects. In Ref. [16], the authors examined the multifaceted role of businesses with broader missions in enhancing sustainable performance. The study, involving an analysis of 115 listed companies, underscored the potential for top-level management to enhance sustainability through Corporate Social Responsibility (CSR) disclosure and dividends. This approach serves as a signal for future sustainable performance. These results echoed similar findings, emphasizing the value of dividends and CSR disclosure to institutional investors. In Ref. [17], the authors illuminated the intersection of sustainable business practices and frugal innovation, which entail resourceful and cost-effective product and service creation methods. Their inductive study, employing multiple case methods, suggested that businesses harnessing frugal innovation could generate profits and address pressing social issues. These endeavours encompass empowering women, enhancing the quality of life, providing affordable healthcare to underserved populations, and embracing environmental responsibility. Furthermore, the study suggested that sustainable business could open new markets in developing countries, fostering inclusive growth. Shifting our focus to Ghana’s textile industry, Ref. [18] delved into the relationship between future-oriented practices, the Triple Bottom Line (TBL), and sustainability. Employing quantitative research methods and a suite of statistical analyses, they examined the manufacturing processes of Ghana’s textile firms. Their assessment, supported by standards and certification indicators, encompassed a range of metrics and tools. The study presented a comprehensive evaluation of production sustainability and underscored the significance of the Triple Bottom Line in shaping the industry’s sustainability profile. Lastly, Ref. [19] tackled the challenge of measuring social sustainability, a goal many African countries aspire to achieve. This endeavour involved a mixed statistical method that explored 50 distinct social sustainability metrics across various dimensions. Surveys were conducted with senior managers and business owners from 110 companies in Ghana, representing both private and public sectors. The outcome was the identification of 26 specific measures of social sustainability, categorizing them into seven broad dimensions: community, equity, poverty alleviation, human rights, ethics, employee welfare, and regulatory compliance.
In Ref. [20], the authors delved into sustainable strategies in manufacturing firms, scrutinizing the influence of social and environmental innovations. They examined the impact of these innovations on firm performance, gauged through longitudinal financial data. The research, grounded in quantitative methodology and data from a survey of Norwegian manufacturing firms, aimed to assess aspects of sustainability strategies’ value creation, cost reduction, and risk mitigation.
To illuminate the global efforts toward a more sustainable world by 2030, Ref. [21] analysed two crucial dimensions. The Environmental Performance Index and the country’s risk score, reflecting political stability, were used to evaluate countries’ environmental protection efforts and manage their economic and political systems. By studying data from 163 countries, the research aimed to assess how effectively countries protect their environments while maintaining political and economic stability.
In a 2023 study, Ref. [22] delved into the world of Indonesian companies, focusing on Sustainable Management Control Systems (SMCS) and eco-innovation. They sought to discern the influence of Supply Chain Management (SCM) and digital adaptability in this context. The research revealed that SMCS and eco-innovation are pivotal in pursuing sustainable profitability. However, the relationship between SCM and digital adaptability appeared more complex. Significantly, this study is limited to Indonesian firms, and the data should always be approached with caution due to potential inaccuracies.
Additionally, causality remains challenging to establish within this intricate web of factors. Turning our focus to the global stage, Ref. [23] investigated how specific practices in supply chain management within sharing economy platforms impact Sustainable Development Goals (SDGs). Sustainability, addressing economic and environmental facets, is a global imperative. The study concentrated on three critical aspects of Sustainable Supply Chain Management (SSCM): environmental, economic, and societal. Surveys targeting 260 Chinese customers with a sharing economy experience were conducted through electronic questionnaires, with data analysed using AMOS. The results underscored a significant connection between SSCM practices within sharing economy platforms and the achievement of SDGs. In the energy systems domain, Ref. [24] delved into the determinants of RES, focusing on the resilience of energy systems. Employing a panel regression model and combining it with a DSGE model based on RES shock response mechanisms, they sought to assess the impact of Renewable Energy Sources (RESs) on economic sustainability. Their findings illuminated various pathways, suggesting that enhancing RESs can be achieved through energy transition, infrastructure development, research, development, and tax rate adjustments. These outcomes offer insights into modernizing energy systems.
In terms of data analytics and sustainability, Ref. [25] demonstrated the potential of big data-based tools in assessing a company’s impact on social sustainability. Their method was tested using real-life data from the Impact-Weighted Account Project at Harvard Business School. The results confirmed that big data technology can effectively guide companies in aligning their operations with the United Nations’ Social Sustainable Development Goals.

2.2. Sustainable Investments and Firm Performance

In the realm of contemporary academic research, a compelling narrative unfolds, intertwining sustainability and profitability in the financial world. Several studies vividly picture this complex relationship, offering valuable insights into how sustainable investments, environmental considerations, and financial performance shape the modern financial landscape. The current study has segregated sustainable investments into three broad categories: environmentally, economically, and socially sustainable [26].
H1. 
Environmentally sustainable investments influence the firm performance positively.
Turning to renewable energy, Ref. [27] embarked on a comprehensive exploration. The research encompassed an evaluation of solar and wind energy’s financial impact on companies in various public and private markets from 2000 to 2017. Their analysis illuminated the potential financial benefits of solar energy, which tended to yield a higher Return on Assets (ROA). However, it also hinted at a trade-off, with public companies experiencing lower Return on Equity (ROE). Shifting our gaze to Italy, Ref. [28] explored the fusion of clean production in the circular economy with the mission statements of firms. Through a comprehensive examination of the firm’s mission statements on public media platforms like LinkedIn, themes revolving around sustainability, technology, production, and consumption emerged, reflecting the intricate relationship between corporate missions and sustainable investments [29]. Focusing on Chinese listed companies, the data has been collected from 2010 to 2020. This paper explores the relationship between institutional investors and green innovation by exploring their sustainable identity. It also focuses on management’s role in developing sustainable strategies and shows their efforts in achieving sustainable goals. This paper emphasizes the importance of government policies’ role in implementing green innovation. Heading south to Mexico, Ref. [30] probed the influence of eco-friendly regulations on car companies. Their study showcased the financial advantages of green supply chain management and eco-friendly practices, offering valuable insights into environmentally conscious business strategies. In Iberia [31], the relationship between various factors and the quality of environmental disclosure within companies in Portugal and Spain from 2010 to 2017 was dissected. Their findings suggested that female representation on boards positively influenced both financial and sustainable performance, underscoring the need for diverse leadership. Moreover, their research indicated the interdependence of sustainable investments and financial circumstances, challenging the effectiveness of regulatory measures mandating certain sustainability practices within companies.
H2. 
Economically sustainable investments influence the firm performance positively.
In 2023, Ref. [32] ventured into the transformative realm of cryptocurrencies, seeking to understand their potential to reshape the traditional financial system. Through a model rooted in the “Expectation Confirmation Theory,” Arpaci examined the sustainability and profitability of cryptocurrencies as a viable investment option. Employing both structural modelling and neural networks, the research yielded a striking revelation: 74% of the variance could be attributed to the financial sustainability of cryptocurrencies. This discovery underscores the intriguing prospect of artificial neural networks (ANNs) as a potent tool for forecasting the viability of cryptocurrencies. While Arpaci’s work provided a tantalizing glimpse into the cryptocurrency domain, Ref. [22] explored the dynamics of sustainable financial performance. They focused on Indonesian companies and the intricate relationship between Sustainable Management Control Systems (SMCSs), eco-innovation, and supply chain management policies. By administering meticulous surveys directed at top-level management, this study uncovered a tangible influence of SMCSs and eco-innovation on sustainable financial performance. It offered a valuable perspective that enriched the realm of managerial decision-making. Meanwhile, Ref. [33] explored the intersection of technology and financial services, particularly in the context of developing countries. Their research covered the period from 2004 to 2020 and employed data and mathematical techniques to discern the connection between enhanced access to financial services and technology and economic growth. Their work pointed to a symbiotic relationship between technology, financial services, and economic development, potentially catalysing growth in developing nations [34]. The paper develops the Sustainable Product Impact (SPI) Index to bridge the gap between Sustainable Development Methodologies and firm financial outcomes. This paper focuses on the effect of sustainable product development on a company’s financial performance. It also emphasizes the impact of sustainable products on the bottom line of the firm’s financial performance. Lastly, it highlights enhancing firms profitably and increasing adaptability and responsible corporate citizenship. In Ref. [35], the authors focused on the economic landscape of Ghana, addressing the escalating concerns surrounding the country’s mounting debt. After employing cointegration and regression techniques, their findings suggested a positive correlation between rising domestic debt in Ghana and overall economic growth, providing a nuanced perspective on the country’s fiscal challenges. Amid these diverse and illuminating academic investigations into sustainability and profitability, one crucial aspect that remains relatively unexplored is how these dynamics may vary depending on the nature of the sector, whether public or private. While the studies we have traversed have provided valuable insights and shed light on the intricate relationship between sustainability practices, environmental considerations, and financial performance, they have primarily examined these relationships across various industries and regions.
H3. 
Socially sustainable investments influence the firm’s performance positively.
Ref. [36] took a broader view, assessing how environmental, social, and governance (ESG) factors impact company performance. Their dataset spanned over 180 globally listed companies in the utility sector from 2018 to 2021. Through an innovative approach involving market-based and accounting-based responses, they discovered specific combinations of ESG activities that significantly influenced financial performance. Intriguingly, their findings suggested that the “E” and “S” aspects of ESG were pivotal in determining financial success, hinting at a nuanced approach to sustainability in the corporate world. In Ref. [37], the authors’ research zoomed into the European landscape, investigating the relationship between a company’s ESG reputation and financial performance. Additionally, they considered the impact of European Union regulations and the disruptive force of the COVID-19 pandemic. Their extensive dataset from 2007 to 2021 unveiled a compelling narrative: companies with robust ESG reputations experienced reduced information uncertainty, faced fewer financial constraints, and displayed superior financial performance. In Ref. [38], the authors shifted their focus to Vietnam, scrutinizing the interplay between sustainability and financial performance in listed companies from 2012 to 2017. Their dual-model analysis revealed intriguing dynamics: companies emphasizing social responsibility did not significantly harm their financial performance. In contrast, those emphasizing environmental responsibility seemed to experience a more pronounced negative effect. Transitioning to Islamic banking and financial institutions, Ref. [39] explored the synergy between Islamic corporate governance and sustainability performance. Their research demonstrated that strong corporate governance, influenced by Shariah board attributes and ownership structure, was pivotal in ensuring financial stability and sustainability within Islamic financial institutions. Understanding how these relationships are shaped by sector-specific characteristics, governance structures, and market forces can offer a more nuanced and comprehensive perspective. This research, therefore, delves deeper into the sectoral nuances, considering the distinct challenges and opportunities faced by public and private companies. It uncovers sector-specific strategies and dynamics that influence the interplay between sustainability and financial performance, thus enriching our understanding of this complex and evolving narrative. A 2023 study conducted by [40] investigated the corporate sustainability practices of 65 listed Indian firms using the ESG score. The research reveals that the sustainability practices of listed companies significantly impact the firm’s performance. Further analysis has found that among the three significant variables of sustainability, firms’ social and governance activities had a significant positive impact on their performance. In contrast, environmental activities had a negative and insignificant association with firm performance. In Ref. [41], the authors focused on whether ESG performance impacts sustainability through firms’ innovation in Bangladeshi manufacturing industries. The paper examines the fact that the higher the environmental performance of manufacturing firms, the better their sustainability performance. The variables in ESG include air emission, hazardous and harmful material consumption, and frequent environmental accidents. It has been found that reducing these variables can enhance the firm’s environmental performance. Moreover, enhancing environmental performance can achieve innovation in product development. In another realm, Ref. [42] delved into manufacturing firms’ challenges in implementing social sustainability practices. Their investigation employed an approach known as Interpretive Structural Modelling (ISM), which aims to analyse the contextual relationships among key barriers and rank them in importance. The findings highlighted critical barriers to successful social sustainability practices, mainly related to the low levels of internal encouragement programs and the limited involvement of operational staff in planning and supporting policies.

3. Research Methodology

3.1. Research Design

This article examines the impact of sustainable investments on the firm performance of Indian private and publicly owned companies. The methodology of this study is threefold. First, the data of 75 companies listed in the BSE index from 2012 to 2022 has been collected from Prowess IQ. Furthermore, three different methods have been used for analysis: descriptive analysis, correlation analysis, and multiple regressions. The multiple regressions have been used on two panels for robustness. Two separate panels have been created for privately owned and publicly owned companies; on those panels, we have applied panel data regression to explore the impact of sustainable investments on firm performance.
The following model is generally used for the hypothesis testing:
Firm Performance = f (staff welfare training investment + social and community investment + donation + employee’s utilization ratio + research and development investment + environment pollution and control investment)

3.2. Firm Performance Measurement

Firm performance was used as the dependent variable in this study. The firm performance of the organization has been measured as two broad categories, ROA and ROE, which many researchers have used. The ROA and ROE explain the overall performance based on the historical data extracted from the balance sheet [26,43,44]. The dependent variables used in this study are given in Table 1, shown below.

3.3. Sustainable Investments Measures

Sustainable investments have been used as independent variables; sustainability has been classified into three broad parameters: social, economic, and environmental. In Table 2, we have displayed these three forms of sustainable investments to observe the combined effects on firm performance.

3.4. Sample and Data Collection

Table 3 depicts the data collected from ProwessIQ, a CMEI database (Centre for Monitoring Indian Economy). The researchers have used BSE 100 as a database as a more refined indicator [26,43]. The researchers have identified 11 publicly owned companies and 64 privately owned companies according to market capitalization.

3.5. Research Model

Two models have been tested using panel regression.
ROE = β1(SCE) +β2(SWTE) +β3(RDE) +β4(EPCE) +β5(EU) +β6(Do) + €
ROA = β1(SCE) + β2(SWTE) + β3(RDE) + β4(EPCE) + β5(EU) + β6(Do) + €
Social sustainability is represented by the SCE, which represents the investments incurred in the welfare of society and community. SWTE represents the expenses incurred in the staff and welfare training, and (Do) represents the expenses incurred in the donations. Economic sustainability has been represented by the (EU), an employee utilization ratio, and expenses in research and development investment (RDE). Environmental sustainability is represented by environmental and pollution investment expenses (EPCEs). β1, β2, β3, β4, β5, and β6 represent the coefficients of social and community expenses, staff and welfare training investments, research and development investments, environment and pollution investment, employment utilization ratio, and donations, respectively.

4. Empirical Results and Analysis

4.1. Descriptive Statistics (Table 4)

Table 4 represents a descriptive analysis of the variables used in the study: dependent variables, namely ROA and ROE, and the independent variables, namely the employee utilization ratio, research and development expenses, staff welfare and training expenses, social and community expenses, environment and pollution expenses, and donations.
Table 4. Descriptive statistics.
Table 4. Descriptive statistics.
VariablesNMinimumMaximumMeanStd. Deviation
EU8241.83168.5221.230723.76311
RDE8240.0026,894.704594.56885564.04742
Do8240.003037.70160.8131212.12829
SWTE8240.1038,493.502137.61404197.28026
SCE8240.0040,615.001597.81936192.84191
EPCE8240.007831.30221.8430421.73575
ROA824−29.1339,596.0066.33491406.85194
ROE8240.02184.047.099010.07728
Prepared by the authors.
The descriptive data of the variables used in the study are shown in the above table. In the sustainable investment variables, the minimum, maximum, and mean values are 1.83,168.5 and 21 in EU; 0, 26,894, and 4595 in RDE; 0, 3037, and 160 in donations; 0.1, 38,493, and 2138 in SWT; 0, 40,615, and 1598 in SCE; and 0.7831 and 222, respectively. In firm performance, the minimum, maximum, and mean values are −29, 39,596, and 66 for ROA and 0.02,184, and 7 for ROE, respectively.

4.2. Autocorrelation Test (Table 5)

Before running the panel data regression, a few assumptions should be tested first; one of the assumptions autocorrelation [10]. The Durban–Watson test has been run to test the autocorrelation among the different variables. The values of Durban–Watson should lie between 1.5–3 [10,26,43,62]. From the results of Table 5, the value of Durban–Watson in this article lies within the standardized ranges of 2.2345 and 2.4136 for ROE and ROA, respectively. This indicates that there is no autocorrelation among the variables.
Table 5. Auto-correlation test.
Table 5. Auto-correlation test.
VariablesDurbin–Watson Statistic
ROE2.2345
ROA2.4136
Prepared by the authors.

4.3. Heteroskedasticity Test (Table 6)

One of the panel data regression assumptions is the heteroskedasticity, for which the Breusch–Pagan test is used. The null hypothesis is tested for this; if the value comes out to less than 0.05, that means there is heteroskedasticity [51,79,80]. The null hypothesis should be accepted because data should be heterogeneous. For our data, the results show that the data has heteroskedasticity (Table 6). The p values are 0.001 and 0.002 for ROE and ROA, respectively.
Table 6. Heteroskedasticity Test.
Table 6. Heteroskedasticity Test.
VariablesBreusch–Pagan LM (Statistic)Probability
ROE7328.6140.001
ROA5822.9040.002
Prepared by the authors.

4.4. Correlation between Variables (Table 7)

Table 7 explains the correlation analysis that shows that employee utilization ratio and environment and pollution are significantly correlated. Research and development are significantly correlated with donations, staff and welfare training, and ROE. Donations are significantly correlated with research and development. Staff welfare and training are significantly correlated with donations and ROE. Social and community expenses are positively correlated with ROE and ROA. Environment and pollution are significantly correlated with the employee utilization ratio. ROA is significantly correlated with social and community expenses. ROE significantly correlates with research and development, staff welfare and training, and social and community expenses.
Table 7. Correlation Analysis.
Table 7. Correlation Analysis.
Variables EU RatioRDEDoSWTESCEEPCEROAROE
EU 1−0.0130.021−0.057−0.0100.254 **−0.0300.017
RDE0.01310.361 **0.126 **0.013−0.009−0.0360.073 *
Do0.0210.361 **1−0.0090.067−0.017−0.0240.031
SWTE−0.0570.126 **−0.00910.047−0.040−0.0140.232 **
SCE−0.0100.0130.0670.0471−0.0520.115 **0.157 **
EPCE0.254 **−0.009−0.017−0.040−0.0521−0.0060.036
ROA−0.030−0.036−0.024−0.0140.115 **−0.00610.037
ROE0.0170.073 *0.0310.232 **0.157 **0.0360.0371
** Correlation is significant at the 0.01 level (two-tailed). * Correlation is significant at the 0.05 level (two-tailed). Prepared by the authors.

4.5. Testing of Hypotheses

Table 8 depicts the regression analysis that indicates that, in the private sector, the SCE, SWTE, EPCE, Do, and EU show a significant impact on the ROE, having coefficients values of 0.0001, 0.0006, 0.009, 0.001, and 0.001, respectively, and R square, Durban–Watson, and probability values of0.129, 1.13, and 0.000, respectively. which supports the hypotheses H1, H2, and H3. SCE, RDE, and EPCE have shown a positive significant impact on ROA with the values of coefficients of 0.027, 0.006, and 0.023, respectively, (supports hypotheses H1, H2, and H3). The model shows the values of R square, Durban–Watson, and probability are 0.016, 1.13, and 0.06, respectively. These findings corroborate the study conducted by [43,81,82] but contradict the findings of [83].
In publicly owned companies, only social and community investment significantly impacts ROE with a 0.0026 coefficient value; as far as the other sustainable investments are concerned, they have no significant impact on the ROE. However, SCI also positively impacts ROA, which supports our hypothesis (H3). R square, Durban–Watson, and probability values are 0.5504, 2.5, and 0.000, respectively. SCE, RDE, EPCE, EU, and Do positively impact the ROA, supporting hypotheses H1, H2, and H3. Furthermore, the statistics show that the model fits with the values of R square, Durban–Watson, and probability, which are 0.3788, 0.66, and 0.000, respectively. These findings corroborate the study conducted by [84,85,86] and contradict the findings of [83].
The results indicate that sustainable investments improve firm performance, but the combined effects of subvariables are observed in the analysis, namely environmentally sustainable investment, economically sustainable investment, and socially sustainable investment. As far as the firm’s performance is concerned, the combined effect of ROA and ROE is observed.

5. Discussion

5.1. Theoretical Implication

The current study’s findings are mixed in nature, as it used samples of the population, creating a diverse result. Sustainability as a whole is a comprehensive concept, but in the current study, we have measured the impact of sustainable investments on firm performance, specifically in the area of financial performance. There have been various studies on this topic, but the novelty lies in the segregation of the sample into two broad categories, namely private and public sectors. The current study contributes in the following manners: Firstly, the previous studies have used different control variables, but the robustness still needs to be checked. In the current study, we used ownership as a control variable. Then, we segregated the sample into two broad categories to further analyse the relationship between sustainable investments and firm performance. Secondly, the previous studies used different scores like the ESG scorecard and the social sustainability index; we used a different model, which is more suitable for Asian listed companies, especially Indian listed companies. The data were extracted from CMIE (Centre for Monitoring Indian Economy), a department of the Government of India, and the variables were indexed in its database (ProwessIQ).

5.2. Managerial Implication

Sustainability has always been a topic for discussion. Various Indian government surveys state that in the adoption of the 2030 global agenda, countries are moving forward to achieve a world free from poverty, gender inequality, and economic inequality by ensuring a healthy planet for future generations. In Ref. [87], the authors concluded that CSR and sustainable investments enhance the financial performance of Chinese listed companies. These multi-dimensional goals integrate various social, economic, and environmental dimensions. This paper gives a roadmap for policymakers to understand the impact of investments in sustainable practices on firms ‘performance by comparing public and private sector companies. The current study has given directions to the different stakeholders to invest in sustainable practices, whether owned by the government or privately. Sustainable reporting has played a vital role in enhancing the firm performance [10]. Hence, it is recommended that we go with a sustainable investment. Various reports and articles have informed the different regions of the world on the importance of sustainable investments and their impact on firm performance; however, in the corporate world, we use sustainability as a strategy to gauge the different stakeholders.

5.3. Limitations and Future Directions

The article presents a comprehensive but incomplete picture of sustainable investments and firm performance. A few limitations are linked with it, like the small sample size, the possible risk of biased results due to specific outcomes, and the geographical focus on the Indian level. Future research could work on a more extensive database and get more robust results. The variable of sustainable investments and firm performance could be increased. We have only used profitability/firm performance parameters, but market-based parameters like EPS and Tobin’sQ can be used in future research. The methodology could be improved, and qualitative studies can be conducted in the future. Dynamic modelling techniques like GMM can be used for more robust analysis and results. We have yet to use a mean score like ESG, SRI, and GRI, but future research could use such refined variables.

6. Conclusions

Sustainable investments play a vital role in today’s corporate world, not only because they create an excellent perception of the corporation in the eyes of the different stakeholders but also because they affect profitability [88]. A study conducted by [89] found that sustainable investments improve the firm performance under the ownership control variable. To get a holistic view of private and publicly owned companies, separate panels of private and public sectors were created. It has been observed that in privately owned companies, socially sustainable investments, environmentally sustainable investments, and economically sustainable investments have a positive significant impact on ROE, in which the return on equity and return on assets could be improved by incurring costs in social and staff welfare. In private organizations, corporations give more weight to society and staff to improve profitability. However, in publicly owned organizations, the impact of sustainable investments is statistically negative. According to our findings, SCI, RDI, EU, and donations show a positive association with ROA, which means if the public companies incur any sort of sustainable investments, they might get positive returns, which are similar to the studies conducted by [90,91]. It could be said that sustainable investments play a vital role in improving the firm performance of Indian listed companies irrespective of their ownership structure. However, according to the findings, staff welfare and training investment do not affect firm performance in publicly owned companies, so the stakeholders should devise a plan to overcome this situation. As suggested by [61], employee commitment helps improve performance. One study [58] also suggests that staff welfare and training play a vital role in improving sustainable reporting and improving firm performance.

Author Contributions

Conceptualization, M.Y.J.; Data curation, M.A.; Formal analysis, M.Y.J. and M.A.; Methodology, M.Y.J.; Resources, M.H. and M.Z.R.; Supervision, S.A.A.S.; Writing—original draft, M.Y.J., M.A., M.Z.R., M.H. and S.A.A.S.; Writing—review and editing, M.Y.J., M.A., M.Z.R., M.H. and S.A.A.S. All authors have read and agreed to the published version of the manuscript.

Funding

The authors extend their sincere appreciation to the Researchers Supporting Project number (RSPD2024R1038), King Saud University, Riyadh, Saudi Arabia.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

The data supporting this study’s findings are available upon reasonable request.

Acknowledgments

The authors extend their sincere appreciation to the Researchers Supporting Project number (RSPD2024R1038), King Saud University, Riyadh, Saudi Arabia.

Conflicts of Interest

The authors declare no conflicts of interest.

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Table 1. Firm performance.
Table 1. Firm performance.
DescriptionDescription
ROAROA = Net income/Total assetsThis shows the percentage of profits generated by the assets [10,45,46,47,48,49].
ROEROE= Net income/Total equityThis is a measure of profitability realised through the shareholder’s equity [26,43,44,50].
(Prepared by the authors.)
Table 2. Parameters of sustainable investments used.
Table 2. Parameters of sustainable investments used.
Sustainable Investments ParametersSub VariablesDescriptions
Socially sustainable investments Social and community expenses (SCEs)These are the expenses/investments that a corporation incurs for the sake of society [26,51,52,53,54,55].
Staff welfare and training expenses (SWTEs)The expense that a corporation incurs on the staff to train them regarding the sustainable developments and practices [43,56,57,58,59,60,61].
Donations (Dos)These are a part of the net profit that is distributed to different social causes [62,63,64,65,66,67,68].
Economically sustainable investmentsEmployee’s utilisation ratio (EU)The optimum utilisation of employees to make the lean supply chain in order to improve efficiency [43,61,69,70,71].
Research and development expenses (RDEs)The amount invested for innovative and lean processes to reduce the wastage [26,43,72,73,74,75].
Environmentally sustainable investments Environmental and pollution control expenses (EPCEs)These are a form of expense that is incurred to control the pollution and to preserve the environment [26,44,50,76,77,78].
Prepared by the authors.
Table 3. Descriptive statistics.
Table 3. Descriptive statistics.
Types of OwnershipFrequencyNPercent
PUBLIC1221114.8
PRIVATE7026485.2
Total82475100.0
Prepared by the authors.
Table 8. Fixed effect (FE) and pooled OLS (PE) regression analysis.
Table 8. Fixed effect (FE) and pooled OLS (PE) regression analysis.
Private OwnershipPublic Ownership
VariablesROE (FE)ROA (FE)ROE (PE)ROA (PE)
SCE0.000153 *0.027857 *0.002641 *0.000466 *
SWTE0.000658 *−0.0067833.56 × 10−5−0.000141
RDE9.95 × 10−60.006043 *0.0005930.000480 *
EPCE0.009779 *0.023404 *6.78 × 10−60.000549 *
EU0.001454 *−2.361065−0.0229110.026104 *
Do0.001203 *−0.2255150.0013880.002280 *
C4.313218148.25824.3403078.132982
R squared0.12950.0160.55040.3788
Durban–Watson1.13861.13312.50.6689
Probability0.0000.06440.0000.000
* statistical significance. Prepared by the authors.
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Javed, M.Y.; Hasan, M.; Aqil, M.; Ziaur Rehman, M.; Salar, S.A.A. Exploring Sustainable Investments: How They Drive Firm Performance in Indian Private and Publicly Listed Companies. Sustainability 2024, 16, 7240. https://doi.org/10.3390/su16167240

AMA Style

Javed MY, Hasan M, Aqil M, Ziaur Rehman M, Salar SAA. Exploring Sustainable Investments: How They Drive Firm Performance in Indian Private and Publicly Listed Companies. Sustainability. 2024; 16(16):7240. https://doi.org/10.3390/su16167240

Chicago/Turabian Style

Javed, Mohd Yousuf, Mohammad Hasan, Mohd Aqil, Mohd Ziaur Rehman, and S. A. Atif Salar. 2024. "Exploring Sustainable Investments: How They Drive Firm Performance in Indian Private and Publicly Listed Companies" Sustainability 16, no. 16: 7240. https://doi.org/10.3390/su16167240

APA Style

Javed, M. Y., Hasan, M., Aqil, M., Ziaur Rehman, M., & Salar, S. A. A. (2024). Exploring Sustainable Investments: How They Drive Firm Performance in Indian Private and Publicly Listed Companies. Sustainability, 16(16), 7240. https://doi.org/10.3390/su16167240

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