Analysis of corporate sustainability performance and corporate financial performance causal linkage in the Indian context

Abstract

This paper aims to explore the relationship between corporate sustainability performance (CSP) and corporate firm performance (CFP) for a sample of the top 500 Indian firms covering the period from 2008 to 2018. CSP variables have been considered at both aggregate and disaggregate levels of environmental, social and governance performance. CFP has been evaluated in both accounting and marketbased measures. Rigorous statistical methods have been used to evaluate the bidirectional causality and intensity of the CSP-CFP relationship using the Granger causality test and multiple regression for panel data. A sectoral level trend analysis is presented dividing the firms in various industries and classifying them in ESI vs non-ESI sectors. The findings indicate the absence of causality among CSP and CFP variables in either direction and suggest that the CSP-CFP linkage is mostly insignificant for Indian firms at the aggregate level. At an individual level, some negative association is found between CSP and CFP. This relationship has an adverse impact on CSP-CFP linkage in both cases, which means that Indian firms don't get the financial performance benefits of investments done for sustainability. Our findings with mostly insignificant results for this relation also means that firms with higher or lower CSP on ESG dimensions will perform likewise in terms of CFP. The findings have practical implications for corporates, academicians, and policymakers alike given sustainability as a high focus area for all.

Nexus between sustainability reporting and corporate financial performance: evidence from an emerging market

“…The regression results indicate that corporate financial performance is positively related to sustainability practices, but this relationship is not statistically significant. This result is consistent with the results of several studies conducted in other countries such as Thayaraj and Karunarathne (2021) in Sri Lanka, Jha and Rangarajan (2020) in India, Iswati (2020) in Indonesia, Matemane and Wentzel (2019) in South Africa, Hussain et al (2018) in the USA, Umoren et al (2018) in Nigeria, Goel and Misra (2017) in India, Buys et al (2011) in South Africa, Moneva and Ortas (2008) and Van de Velde et al (2005) in Europe. This study has implications for many parties.…”

“…On the contrary, some studies have concluded that there is a negative relationship between the sustainability reporting and the corporate financial performance such as Rahi et al (2022) in the Nordic region (Sweden, Denmark, Finland and Norway), Buallay et al (2021) using a sample of banks in 80 countries, Buallay et al (2020) in MENA countries, Brammer et al (2006) in the UK and Dhaliwal et al (2011) in the USA. On the other hand, some studies have concluded that there is no significant relationship between sustainability reporting and corporate financial performance such as Thayaraj and Karunarathne (2021) in Sri Lanka, Goel and Misra (2020) in five Asian economies (India, Japan, Hong Kong, Singapore and the Philippines), Jha and Rangarajan (2020) in India, Iswati (2020) in Indonesia, Matemane and Wentzel (2019) in South Africa, Hussain et al (2018) in the USA, Umoren et al (2018) in Nigeria, Goel and Misra (2017) in India, Buys et al (2011) in South Africa, Moneva and Ortas (2008) and Van de Velde et al (2005) in Europe. The inconclusiveness of the results of previous studies and their differences from one country to another justify further research on this issue.…”

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“…In the literature it was found that topics in the area such as water, climate change, plastic pollution, deforestation among many other are critical discussion areas to consider to sustainable environment (Earth.Org, 2020;Interim, 2020;Tiwari et al, 2011). In the study on Indian companies Jha and Rangarajan (2020) found that Water was highlighted as the third-highest priority, while Learning and Energy being the first two priorities. Factoring in the number of content, 19% of the contents were on Plastic and Packaging (second to only water with 20% of content).…”

Corporate Governance, Financial Performance, and Social Sustainability Practices of Consumer Goods Companies Listed in Nigeria

“…Moreover, Jha and Rangarajan (2020) discovered in their study that sustainability practices in companies is negatively related to companies' financial performance, thereby investment on sustainability has no returns to companies in Indian. Also, the study of Gómez-Bezares, Przychodzen, and Przychodzen (2016) on sustainability and stockholder capital focusing on firms in Britain and understandings from the issues revealed that sustainability practices was negatively connected with stock return volatility.…”