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Sustainability and Financial Performance Relationship

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A special issue of Sustainability (ISSN 2071-1050). This special issue belongs to the section "Economic and Business Aspects of Sustainability".

Deadline for manuscript submissions: closed (15 October 2022) | Viewed by 53288

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Special Issue Editors

Prof. Dr. Luís Miguel Pacheco

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Guest Editor

Portucalense University, Department of Economics and Management, Rua Dr. António Bernardino de Almeida, 541-619, 4200-072 Porto, Portugal
Interests: finance; SMEs; firm performance; firm valuation; internationalization; ESG

Prof. Dr. Mónica Azevedo

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Guest Editor

Portucalense University, Department of Economics and Management, Rua Dr. António Bernardino de Almeida, 541-619, 4200-072 Porto, Portugal
Interests: economic growth; innovation; SMEs

Special Issue Information

Dear Colleagues,

The last couple of decades have witnessed the growing interest of the academic literature in the conciliation of firm financial performance and growth with social and environmental concerns. Firms face increasing pressure from both shareholders and stakeholders towards adopting sustainable practices. Regulatory impositions, potential competitive advantages, legitimacy and ethical concerns all point to the integration of social, environmental, diversity and community dimensions into firms’ daily life. At a time of huge changes and uncertainties in the internal and external factors that determine firm performance, sustainable development challenges must be at the forefront of business decisions. Nevertheless, the integration of those dimensions surely has effects on firms’ operating costs, margins and market positioning. The existent literature does not provide us with an unambiguous answer regarding the sign and significance of the relationship between variables proxying sustainability and different market- or accounting-based performance measures. Therefore, it continues to be relevant to study the relationship between sustainability and financial performance. The aim of this Special Issue is to present an updated set of studies, theoretical ideas and methodological developments dealing with the sustainability–financial performance nexus. This Special Issue will include, but is not limited to, the following topics: i) implications of adopting sustainable management practices to financial performance; ii) presentation of good practices in sustainable management that enhance financial performance; iii) implications of different contexts, namely in terms of corporate governance, market structure, firm dimension and geographical, cultural and gender aspects or others; and iv) explore potential non-linear, bidirectional and moderating effects in the relationship between sustainability and financial performance.

The insights expected to be obtained with this set of papers about the impacts on financial performance resulting from the adoption of sustainable practices will be useful to all stakeholders, particularly shareholders, managers, policymakers and regulatory bodies. Finally, besides supplementing the existing literature, it is expected that the present Special Issue presents the main avenues for future research on this topic.

Prof. Dr. Luís Miguel Pacheco
Prof. Dr. Mónica Azevedo
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Sustainability is an international peer-reviewed open access semimonthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 2400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

sustainability
financial performance
ESG
sustainable development
corporate social responsibility (CSR)
green initiatives
firm value

Published Papers (9 papers)

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Research

17 pages, 1910 KiB

Open AccessArticle

Technologies Empowered Environmental, Social, and Governance (ESG): An Industry 4.0 Landscape

by Archana Saxena, Rajesh Singh, Anita Gehlot, Shaik Vaseem Akram, Bhekisipho Twala, Aman Singh, Elisabeth Caro Montero and Neeraj Priyadarshi

Sustainability 2023, 15(1), 309; https://doi.org/10.3390/su15010309 - 25 Dec 2022

Cited by 29 | Viewed by 10671

Abstract

Currently, sustainability is a vital aspect for every nation and organization to accomplish Sustainable Development Goals (SDGs) by 2030. Environmental, social, and governance (ESG) metrics are used to evaluate the sustainability level of an organization. According to the statistics, 53% of respondents in the BlackRock survey are concerned about the availability of low ESG data, which is critical for determining the organization’s sustainability level. This obstacle can be overcome by implementing Industry 4.0 technologies, which enable real-time data, data authentication, prediction, transparency, authentication, and structured data. Based on the review of previous studies, it was determined that only a few studies discussed the implementation of Industry 4.0 technologies for ESG data and evaluation. The objective of the study is to discuss the significance of ESG data and report, which is used for the evaluation of the sustainability of an organization. In this regard, the assimilation of Industry 4.0 technologies (Internet of Things (IoT), artificial intelligence (AI), blockchain, and big data for obtaining ESG data by an organization is detailed presented to study the progress of advancement of these technologies for ESG. On the basis of analysis, this study concludes that consumers are concerned about the ESG data, as most organizations develop inaccurate ESG data and suggest that these digital technologies have a crucial role in framing an accurate ESG report. After analysis a few vital conclusions are drawn such as ESG investment has benefited from AI capabilities, which previously relied on self-disclosed, annualized company information that was susceptible to inherent data issues and biases. Finally, the article discusses the vital recommendations that can be implemented for future work. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

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13 pages, 319 KiB

Open AccessArticle

Corporate Sustainability Performance and Firm Value through Investment Efficiency

by Maha Faisal Alsayegh, Rashidah Abdul Rahman and Saeid Homayoun

Sustainability 2023, 15(1), 305; https://doi.org/10.3390/su15010305 - 24 Dec 2022

Cited by 5 | Viewed by 2458

Abstract

This study investigates the influence of corporate sustainability performance (CSP) on firm value through investment efficiency. By applying a panel regression analysis using a large sample of 26,838 firm-year observations that represent 9218 Asian listed companies over the period of 2012–2019, we illustrate that high corporate sustainability performance (CSP) increases investment efficiency. This result coincides with both stakeholder theory and information asymmetry theory where economic, environmental, social, and governance involvements play a fundamental role in improving firm value. Our results further show that the social dimension significantly improves investment decisions, unlike dimensions associated with environment and governance, which show no significant effect on investment efficiency. These insights about the impact of CSP on investment decisions will be useful to stakeholders, decision-makers, policymakers, as well as academics to improve their awareness of the importance of corporate sustainability practices. Particularly, the positive relationship between the social dimension of CSP and investment efficiency should motivate managers to improve their corporate social responsibility policy formation and implementation, and the management of investment portfolios in enhancing firm value. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

23 pages, 344 KiB

Open AccessArticle

Institutions, Culture, or Interaction: What Determines the Financial Market Development in Emerging Markets?

by Muhammad Asif Khan, Hossam Haddad, Mahmoud Odeh, Ahsanuddin Haider and Mohammed Arshad Khan

Sustainability 2022, 14(23), 15883; https://doi.org/10.3390/su142315883 - 29 Nov 2022

Cited by 6 | Viewed by 1995

Abstract

In this research, we examine how the quality of institutions promotes financial market development (FMD) in 21 emerging markets (classified by the Financial Times Stock Exchange Group). The moderating role of culture is also empirically tested. For this purpose, a balance panel dataset of 21 emerging markets from 1984 to 2020 is utilized from various secondary data sources. The study applies two-stages least square regression with the instrumental variable, and lag transformation to overcome the endogeneity problem in the nexus of institutions and finance, which is least focused on in prior literature. The empirical findings show that institutional quality and the national culture promote FMD in these economies. The main findings are consistent with law and finance, and financial socialization theories. We argue that academics, policymakers, and researchers should comprehend the critical role of institutional and cultural indicators in forming an effective financial system that may lead to sustainable economic development. This research contributes to the literature on emerging markets in this helpful paradigm. We conclude that quality institutions play a critical role in magnifying the FMD of emerging markets. It is crucial to comprehend the connection between FMD and institutions, as the growth dividend from financial development can be boosted by strengthening institutions and understanding the culture. Our results are robust to alternative measures of institutions and FMD and the correction of potential endogeneity. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

12 pages, 275 KiB

Open AccessArticle

Performance of Equity Fund Investment Strategies in Poland

by Igor Kravchuk

Sustainability 2022, 14(20), 13078; https://doi.org/10.3390/su142013078 - 12 Oct 2022

Cited by 1 | Viewed by 1368

Abstract

The modern development of the investment funds industry is underpinned by the understanding of the efficiency and quality of asset management regarding the use of various investment strategies. The purpose of the article is to examine investment strategy performance in equity funds domiciled in Poland using standard relative and absolute measures. The proposed method uses the Sharpe ratios, the Treynor ratio and the Jensen ratios. The research covers investment funds, spanning the period 2017–2021. The study (using the Sharpe and Traynor ratios) finds that the financial instruments for investment funds domiciled in Poland may be attractive to conservative investors, as they provide excessive returns compared to the returns of risk-free assets and inflation, but for riskier investors, most of the investment funds analyzed were unattractive (negative value of the returns of funds compared to stock indices). Absolute measures of fund performance, using the Jensen ratio, are limited for comparing all groups of investment strategies. A specific negative feature in the study of investment strategies based on the Jensen ratio is their inefficiency, that is, all statistically significant values of this ratio are negative. The management of ESG-funds with investments in the European financial market was more efficient than most conventional investment funds. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

32 pages, 687 KiB

Open AccessArticle

Can Green Innovation Affect ESG Ratings and Financial Performance? Evidence from Chinese GEM Listed Companies

by Jianzhuang Zheng, Muhammad Usman Khurram and Lifeng Chen

Sustainability 2022, 14(14), 8677; https://doi.org/10.3390/su14148677 - 15 Jul 2022

Cited by 42 | Viewed by 8748

Abstract

Socially and environmentally responsible investing is becoming the benchmark in financial markets. Promoting emerging industries’ environmental performance, social responsibility, and corporate governance (ESG) ratings are increasingly becoming the consensus of multinational green financial institutions, investors, and governments. This study employs 3100 panel data from 2014 to 2019 to conduct empirical research on green innovation, ESG indicators, and the financial performance of China’s Growth Enterprise Market (GEM) listed companies. Based on the “causal steps approach”, we adopt the Sobel–goodman and Bootstrap test to explore the partial mediation effect of ESG indicators. Moreover, when testing the interactive effect of endogeneity, instrumental variables combined with two-stage least squares (2SLS) and a general method of moments (GMM) system are applied in the dynamic panel for robustness. Combing with the approach of ESG factors-integrated and ESG factors-embedded regression models, we find that: (1) Green innovation can significantly improve the ESG scores of GEM listed companies. (2) Both green innovation and ESG performance can improve the financial performances of GEM listed companies, and ESG performance plays an indirect mediating role in the promotion of green innovation on financial performance. (3) Both political connection strength and regional innovation capabilities can negatively moderate the promotion of green innovation on financial performance, and moderating the effect of corporate political connections is more significant than the regional innovation. This study expands the research on the effectiveness of ESG indices and green innovation from the view of micro-GEM companies, providing policy enlightenment for the sustainable development of emerging industries. Our findings provide noteworthy implications for regulators, academicians and practitioners interested in exploring green innovation, ESG rating and financial performance. In addition, providing regulators and the board of directors with insights into the company’s and country’s future growth prospects. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

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18 pages, 1131 KiB

Open AccessArticle

Examining the Effect of Tax Reform Determinants, Firms’ Characteristics and Demographic Factors on the Financial Performance of Small and Micro Enterprises

by Neba Bhalla, Inderjit Kaur and Rakesh Kumar Sharma

Sustainability 2022, 14(14), 8270; https://doi.org/10.3390/su14148270 - 06 Jul 2022

Cited by 8 | Viewed by 4374

Abstract

Taxation is a powerful tool to achieve sustainable development goals (SDG) as tax policies help strengthen economic growth and improve revenue capacity. So, after tax reform, it is vital to analyze their impact on the performance of enterprises. Keeping in mind the SDG, the present study was conducted in India after the major tax overhaul—Goods and Service Tax (GST) on 1 July 2017, to measure the impact on Return on Equity (ROE) and Return on Investment (ROI) as they are the barometers to measure performance (DuPont Analysis). We opted for tax reform determinants, the characteristics of firms, demographic variables, and drivers from DuPont analysis to conduct the research, as all these variables can help identify the different causes of factors impacting ROI and ROE among different types of firms and demographics across countries. An econometric analysis of 546 registered SMEs (small and micro enterprises) was conducted using the regression model, structured equation modeling, and exploratory and confirmatory factor analysis to achieve the objectives. The empirical findings highlighted that a firm’s size, turnover, and DuPont analysis drivers (earnings × asset to sales × asset turnover) positively enhanced the ROI and ROE. Further, the change in the tax system after the tax reforms has enabled the detection of tax fraud and wrong invoices, reducing the missing insolvent traders and increasing the working capital flow of the firms, which in turn has augmented financial performance. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

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22 pages, 332 KiB

Open AccessArticle

Does the Inclusion of Disabled Employees Affect Firm Performance? Empirical Evidence from China

by Jiaqi Jing, Xiaoqing Feng, Jianbo Song and Boya Li

Sustainability 2022, 14(13), 7835; https://doi.org/10.3390/su14137835 - 27 Jun 2022

Cited by 1 | Viewed by 2303

Abstract

Disabled persons are the largest minority group in the world and an important part of the labor market. However, few studies use empirical methods to investigate the economic consequences of including disabled employees from the perspective of the demand side. Based on the background of China’s employment quota system for the disabled, and using a sample of Chinese Listed Companies from 2016 to 2020, this paper empirically tests the influence of including disabled employees on firm performance. The results show that there is a U-shaped relationship between the inclusion of disabled employees and firm performance. Firm size and social donation have a negative incentive effect, while average employee compensation has a positive incentive effect on the relationship between disabled employees and firm performance. The above results provide empirical evidence for companies to arrange a diversified labor force, and also provide a new perspective for policymakers to adjust policies to promote the employment of the disabled. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

18 pages, 297 KiB

Open AccessArticle

Does ESG Disclosure Influence Firm Performance?

by Silvia Carnini Pulino, Mirella Ciaburri, Barbara Sveva Magnanelli and Luigi Nasta

Sustainability 2022, 14(13), 7595; https://doi.org/10.3390/su14137595 - 22 Jun 2022

Cited by 50 | Viewed by 17406

Abstract

This study aims to analyze the impact of the environmental, social, and governance (ESG) disclosure on the firm performance, given the stakeholders’ increasing attention to the firm’s ESG practices. Looking at the European context, the Directive 2014/95/EU and its update encouraged European large companies to provide disclosure about their socially responsible practices. Acting within the Agency and Signaling theory frameworks, this paper focuses on the Italian situation where the Legislative Decree 254/2016 implemented the European Directive and forced the largest firms (those with more than 500 employees) to disclose comprehensive information about their social and environmental activities starting from 2017. By applying a panel regression analysis, using a sample of the largest Italian listed companies, and considering a time span of 10 years (from 2011 to 2020), this study finds that there is a positive relationship between environmental, social, and governance disclosure and firm performance, measured by EBIT. Our findings will help firms’ stakeholders, decision-makers, policymakers, as well as academics, to improve their awareness of the impact of ESG disclosure on the performance of the firm, both as a comprehensive factor and individually by pillar. The findings, which support the positive relationship between ESG disclosure and firm performance, should incentivize managers to invest in CSR practices. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

22 pages, 1138 KiB

Open AccessArticle

Determinants of Sustainable Profitability of the Serbian Insurance Industry: Panel Data Investigation

by Željko Vojinović, Sunčica Milutinović, Dario Sertić and Bojan Leković

Sustainability 2022, 14(9), 5190; https://doi.org/10.3390/su14095190 - 25 Apr 2022

Cited by 8 | Viewed by 2013

Abstract

This paper aims to investigate the main drivers of sustainable profitability trends in the Serbian insurance industry over the years 2008–2019 (inclusive). Our study is motivated by the fact that insurance companies contribute to economic growth, and thus it is essential to understand the factors that contribute to their financial strength and stability. We use a set of standard panel regression models, including the mixed-effects model, followed by a more robust GMM estimation to uncover the linkage between selected micro-specific, macroeconomic, and institutional factors, and return of assets (ROA) and return on total premiums (ROTP). The present paper constitutes a significant contribution to the existing literature on the account of its comprehensiveness both in terms of the institutional datasets that we use, and in terms of the methodologies we apply (in particular, mixed effects and the generalized method of moments (GMM)). The estimated parameters are model-specific, and we find that firm size, GDP, the population growth rates, political stability, and the degree of specialization (in some empirical models) all lead to higher profitability. On the other hand, we observe that excessive risk-taking and inflation (in some specifications) are inversely related to profitability. Finally, we note that regulatory quality, average wage, and life expectancies are found to be not statistically significant. Accordingly, we argue that a profitability-centric managerial strategy should be based on expanded market share and stringent risk management protocols. At the macro level, we conclude that pro-growth and pro-population policies, combined with a well-oiled institutional setting that ensures political stability, constitute the best possible prescription for strong operational performance and profit sustainability in the Serbian insurance industry. Full article

(This article belongs to the Special Issue Sustainability and Financial Performance Relationship)

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