Bridging the gap: How sustainable development can help companies create shareholder value and improve financial performance

Abstract

This study examines the effect of integrating sustainability into corporate strategy on various aspects of shareholder value creation and financial performance in the British capital market. The employed method is based on the content analysis of corporate disclosures and a new technique for assessing the adoption of the corporate sustainability concept (embracing the environmental, social, and financial aspects of a company's policies at the same time). Using extensive data of FTSE 350 firms covering the years 2006-2012, 65 companies were selected as meeting corporate sustainability criteria. For the above period, we find that these firms were characterized by higher financial risk exposure, lower asset growth rates, lower BV/MV ratios, lower EVA ratios, and higher MVA ratios. Such relations were generally present among different size and industry groupings. The results support the thesis that firms that incorporate sustainability issues into their business operations are better able to leverage their resources toward stronger financial performance and shareholder value creation than other companies. The paper contributes to the literature by offering a more holistic approach to corporate sustainable performance measurement and shedding additional light on its relation to financial performance in the context of the recent global financial crisis and its direct aftermath.Business Ethics: A Eur Rev 2017; 26: 1-17 wileyonlinelibrary.com/journal/beer

Sustainable development and economic performance: Gaps and trends for future research

“…Other studies aimed to examine the relationship between sustainability and financial outcomes in other aspects such as the hospitality industry (Singal, ), clarify the relationship between sustainable behavior and financial performance (Martínez‐Ferrero & Frías‐Aceituno, ), determine if supplier integration and sustainability programs have an influence on financial outcomes (Li, Chow, Choi, & Chan, ), examine the relationship between sustainability disclosure and financial results in Indian companies (Goel & Misra, ), determine whether sustainability integrated to the company strategy has an impact in the financial outcome of companies (Gómez‐Bezares, Przychodzen, & Przychodzen, ), and analyze the relationship between sustainable performance from Chinese banks and their financial results (Weber, ). These have brought positive results to the discussion by analyzing the variables through different points of view and the use of different methods.…”

“…Some studies built an index called sustainable rate of growth, which used over 12 economic variables in its construction (Gómez‐Bezares et al, ), and papers used Standard and Poor's credit ratings as a proxy for financial performance (Cubas‐Díaz & Martínez Sedano, ; Singal, ).…”

“…Other authors suggested integrating qualitative aspects into the sustainability score (Goel & Misra, ), separating the effects among before, during, and after (Gómez‐Bezares et al, ); the conduction of a sectoral analysis (Singal, ); the relationship between using the most recent version of the GRI disclosure and economic outcome of construction companies (Siew et al, ); the gathering of data through different sources (Siminica et al, ); and the use of more direct means of measuring sustainable performance (Wagner & Blom, ).…”

Sustainability assurance and cost of capital: Does assurance impact on credibility of corporate social responsibility information?

“…Nonetheless, despite the upturn in the number of these reports not accompanied by an increased level of public trust (Hodge, Subramaniam, & Stewart, ), there are many who are concerned about the lack of credibility, transparency, and consistency of sustainability reporting and the need for an assurance process which ensures such quality aspects (Adams & Evans, ; Gómez‐Bezares, Przychodzen, & Przychodzen, ; Simnett et al, ). These concerns have led to calls for the adoption of an independent assurance of sustainability reports, which is defined by Global Reporting Initiative (GRI) () as “activities designed to result in published conclusions on the quality of the report and the information contained within it.” Thus, the decision on external assurance is a voluntary decision that may be taken with the aim of improving the credibility of sustainability reporting and consequently increasing the transparency, relevance, and reliability of such information (Cohen & Simnett, ).…”

The performance of socially responsible equity mutual funds: Evidence from Sweden

“…This perspective is supported by studies that document that SR companies perform better compared to those that are less SR (e.g., Kempf & Osthoff, ; Statman & Glushkov, ) . The underlying argument is that SR companies benefit from competitive advantages and have a better quality of management (Frynas & Yamahaki, ), besides experiencing lower risks (Gómez‐Bezares, Przychodzen, & Przychodzen, ) and so are expected to perform better than their “irresponsible” counterparts.…”