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Most of the prior literature that investigated the nexus between corporate sustainability disclosures (CSD) and firm financial performance (FFP) has largely been ignored the potential problem of endogeneity. The omitted variable(s), measurement error, and reverse causality, which are the known causes of endogeneity, may also be the possible reasons for the indecisive and inconsistent relationship between CSD and FFP. Accordingly, this study reinvestigates the relationship by addressing the problem of endogeneity through applying the two-stage least squares (2SLS) estimator to data collected from the annual reports of the top 10 Pakistani banks through content analysis from 2013 to 2017. The results show a positive impact of the CSD and social sustainability on FFP. However, environmental sustainability exerted a negative impact on FFP. The statistics for 2SLS are much different than those of the ordinary least squares (OLS), which explain the importance of addressing the endogeneity bias. The study offers a methodological procedure that identifies and addresses the endogeneity through a step-by-step process in Stata 13.0. Besides, the study also has a novelty to propose and validate additional instrumental variables for the research in the future. Overall, the study has many contributions and implications for different stakeholders such as academia, regulatory bodies, and practitioners in the field of corporate sustainability.

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This study aims to determine the impact of environmental sustainability (ES) on firm financial performance (FFP). The study also examines the mediation of ES in the relationship between integrated management strategies (IMS) and FFP. By employing the content analysis technique for global reporting initiative (GRI) framework, the study collected desired data from the sustainability, corporate social responsibility, and annual reports of the sample firms (1,275 firm‐year observations) listed on the Pakistan stock exchange (PSX) from 2012 to 2016. The study employed a t‐test, ordinary least square, and generalized least square estimator with the fixed effect and random effect for estimating the hypothesized relationships. The results revealed that the ES and IMS have a significant positive impact on the FFP (ROA & Tobin's Q). Also, it is observed that ES mediates the relationship between IMS and Tobin's Q. Furthermore, it also noted that the results are more striking after addressing endogeneity. Besides using the unique ES index, the study also contributes to the literature and practice by updating the developing countries' key stakeholders, especially Pakistan.