Sustainability Practices and Corporate Financial Performance: A Study Based on the Top Global Corporations

Abstract

Sustainability is concerned with the impact of present actions on the ecosystems, societies, and environments of the future. Such concerns should be reflected in the strategic planning of sustainable corporations. Strategic intentions of this nature are operationalized through the adoption of a long-term focus and a more inclusive set of responsibilities focusing on ethical practices, employees, environment, and customers. A central hypothesis, that we test in this paper is that companies which attend to this set of responsibilities under the term superior sustainable practices, have higher financial performance compared to those that do not engage in such practices. The target population of this study consists of the top 100 sustainable global companies in 2008 which have been selected from a universe of 3,000 firms from the developed countries and emerging markets. We find significant higher mean sales growth, return on assets, profit before taxation, and cash flows from operations in some activity sectors of the sample companies compared to the control companies over the period of 2006–2010. Furthermore, our findings show that the higher financial performance of sustainable companies has increased and been sustained over the sample. Notwithstanding sample limitation, causal evidence reported in this paper suggests that, there is bi-directional relationship between corporate social responsibilities practices and corporate financial performance.

This is a preview of subscription content, log in to check access.

References

  1. Acciona. (2008). Acciona Sustainability Report.

  2. Accor. (2008). Accor Annual Report.

  3. Adam, C., & Zutshi, A. (2004). Corporate social responsibility: Why business should act responsibly and be accountable. Australian Accounting Review, 14(3), 31–39.

    Article  Google Scholar 

  4. Adidas. (2008). Adidas Sustainable Performance Review.

  5. Al-Tuwaijri, S. A., Christensen, T. E., & Hughes, K. E. (2004). The relations among environmental disclosure, environmental performance, and economic performance: A simultaneous equations approach. Accounting, Organizations and Society, 29, 447–471.

    Article  Google Scholar 

  6. Aras, G., & Crowther, D. (2008). Evaluating sustainability: Need for standards. Issues in Social and Environmental Accounting, 2(1), 19–35.

    Google Scholar 

  7. Bansal, P. (2005). Evolving sustainability: A longitudinal study of corporate sustainable development. Strategic Management Journal, 26(3), 197–218.

    Article  Google Scholar 

  8. Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32, 794–816.

    Article  Google Scholar 

  9. Brown, M. T. (1990). Working ethics: Strategies for decision making and organizational responsibility. San Francisco, CA: Jossey Bass.

    Google Scholar 

  10. Buchanan, D., Fitzgerald, L., Ketley, D., Gollop, R., Jones, J. L., Lamont, S. S., et al. (2005). No going back: A review of the literature on sustaining organizational change. International Journal of Management Reviews, 7(3), 189–205.

    Article  Google Scholar 

  11. Cacioppe, R., Forster, N., & Fox, M. (2007). A survey of managers’ perceptions of corporate ethics and social responsibility and action that may affect companies’ success. Journal of Business Ethics, 82, 681–700.

    Article  Google Scholar 

  12. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505.

    Google Scholar 

  13. De Vaus, D. A. (1986). Surveys in social research. London: Allen & Unwin.

    Google Scholar 

  14. Diageo Plc. (2008). Diageo Corporate Citizenship Report.

  15. Dowling, G. R. (2001). Creating corporate reputations. Oxford: Oxford University Press.

    Google Scholar 

  16. Epstein, M. J. (1996). Improving environmental accounting with full environmental cost accounting. Environmental Quality Management, Autumn, 11–22.

  17. Epstein, M. J., & Roy, M. J. (2001). Sustainability in action: Identifying and measuring key performance drivers. Long Range Planning, 34, 585–604.

    Article  Google Scholar 

  18. Fadul, J., Halliburton, R., & Maurer, R. A. (2004). Business ethics, corporate social responsibility, and firm value in the oil and gas industry, SPE Annual Technical Conference and Exhibition, 26–29 September, Houston, Texas

  19. Fredrick, W. C. (2006). Corporations, be good! The story of corporate social responsibility. Indianapolis, IN: Dogear Publishing.

    Google Scholar 

  20. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine 13, September 32–33.

    Google Scholar 

  21. Gelb, D. S., & Strawser, J. A. (2001). Corporate social responsibility and financial disclosure: An alternative explanation for increased disclosure. Journal of Business Ethics, 33(1), 874–907.

    Article  Google Scholar 

  22. Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30, 777–798.

    Article  Google Scholar 

  23. Gray, R. (2010). Is accounting for sustainability actually accounting for sustainability and how would we know? An exploration of narratives of organizations and the planet. Accounting, Organizations and Society, 35, 47–62.

    Article  Google Scholar 

  24. Henri, J.-F., & Journeault, M. (2010). Eco-control: The influence of management control systems on environmental and economic performance. Accounting Organization and Society, 35(1), 63–80.

    Article  Google Scholar 

  25. Intel. (2008). Intel Social Responsibility Report.

  26. Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8–21.

    Article  Google Scholar 

  27. Kurucz, E., Colbert, B., & Wheeler, D. (2008). The business case for corporate social responsibility. In A. Crane, A. McWilliams, D. Matten, J. Moon, & D. Siegel (Eds.), The Oxford handbook of corporate social responsibility (pp. 83–112). Oxford: Oxford University Press.

    Google Scholar 

  28. Lee, D. D., Faff, R. W., & Smith, K. L. (2009). Reviving the vexing question: Does superior corporate social performance lead to improved financial performance? Australian Journal of Management, 34, 21–49.

    Article  Google Scholar 

  29. Lopez, V. M., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones sustainability index. Journal of Business Ethics, 75, 285–300.

    Article  Google Scholar 

  30. McElhaney, K. A., Toffel, M. W., & Hass, N. (2005). Designing a sustainability management system at BMW group: The Designworks/USA case study. Greener Management International, 46, 103–116.

    Google Scholar 

  31. McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.

    Article  Google Scholar 

  32. Morhardt, J. E., Baird, S., & Freeman, K. (2002). Scoring corporate environmental and sustainability reports using GRI 2000, ISO 14301 and other criteria. Corporate Social and Environmental Management Journal, 9, 215–233.

    Article  Google Scholar 

  33. Nunnally, J. C. (1978). Psychometric theory. McGraw-Hill: New York.

    Google Scholar 

  34. Patten, M. (2002). The relation between environmental performance and environmental disclosure. Accounting, Organizations and Society, 27(8), 763–773.

    Article  Google Scholar 

  35. Patten, M. (2008). Does the market value corporate philanthropy? Evidence from the response to the 2004 tsunami relief effort. Journal of Business Ethics, 81(3), 599–607.

    Article  Google Scholar 

  36. Pettigrew, A. M. (1985). The awakening Giant: Continuity and change in ICI. Oxford: Blackwell.

    Google Scholar 

  37. Pivato, S., Misani, N., & Tencati, A. (2008). The impact of corporate social responsibility on consumer trust: The case of organic food. Business Ethics: A European Review, 17, 3–12.

    Article  Google Scholar 

  38. Preston, L. E., & O’Bannon, D. P. (1997). ‘The corporate social-financial performance relationship: A typology and analysis. Business and Society, 36, 419–429.

    Article  Google Scholar 

  39. Rimmer, M., Macneil, J., Chenhall, R., Smith, K., & Watts, L. (1996). Reinventing competitiveness: Achieving best practices in Australia. South Melbourne: Pitman.

    Google Scholar 

  40. Roberts, W. P., & Dowling, R. G. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23, 1077–1093.

    Article  Google Scholar 

  41. Robinson, J. (2004). Squaring the circle? Some thoughts on the idea of sustainable development. Ecological Economics, 48(4), 369–384.

    Article  Google Scholar 

  42. Rondinelli, D. A., & Berry, M. A. (2000). Environmental citizenship in multinational corporations. Social responsibility and sustainable development. European Management Journal, 18(1), 70–84.

    Article  Google Scholar 

  43. Schaltegger, S., & Synnestvedt, T. (2002). The link between ‘green’ and economic success: environmental management as the crucial trigger between environmental and economic performance. Journal of Environmental Management, 65, 339–346.

    Google Scholar 

  44. Schaltegger, S., & Wagner, M. (2006). Integrative management of sustainable performance, measurement and reporting. International Journal of Accounting. Auditing and Performance Evaluation, 3, 1–19.

    Google Scholar 

  45. Scholtens, B. (2008). A note on the interaction between corporate social responsibility and financial performance. Ecological Economics, 68, 46–55.

    Article  Google Scholar 

  46. Singh, K. R., Murty, H. R., Dikshit, A. K., & Gupta, S. K. (2009). An overview of sustainability assessment methodologies. Ecological Indicators, 9(2), 189–212.

    Article  Google Scholar 

  47. Stone, B. A. (2001). Special-purpose taxonomy of corporate social performance concepts. Accounting and the Public Interest, 1, 42–73.

    Article  Google Scholar 

  48. Sustainability–UNEP. (1997). The 1997 Benchmark Survey: The Third International Progress Report on Company Environmental Reporting. Oxford: Oxford University Press.

    Google Scholar 

  49. Székely, F., & Knirsch, M. (2009). Responsible leadership and corporate social responsibility: Metrics for sustainable performance. European Management Journal, 23, 628–647.

    Article  Google Scholar 

  50. Tenuta, P. (2010). The measurement of sustainability. Review of Business Research, 10(2), 163–171.

    Google Scholar 

  51. Waddock, S. A., & Graves, S. B. (1997). The corporate social performance—financial performance link. Strategic Management Journal, 18, 303–319.

    Article  Google Scholar 

  52. Wagner, M. (2007). Integration of environmental management with other managerial functions of the firm: Empirical effects on drivers of economic performance. Long Range Planning, 40, 611–628.

    Article  Google Scholar 

  53. Wagner, M. (2011). Corporate performance implications of extended stakeholder management: New insights on mediation and moderation effects. Ecological Economics, 70(5), 942–950.

    Article  Google Scholar 

  54. Wagner, M., & Schaltegger, S. (2003). How does sustainability performance relate to and business competitiveness? Greener Management International, 44, 5–16.

    Google Scholar 

  55. Wagner, M., & Schaltegger, S. (2004). The effect of corporate environmental strategy choice and environmental performance on competitiveness and economic performance. An empirical analysis in EU manufacturing. European Management Journal, 22(5), 557–572.

    Article  Google Scholar 

  56. Warhurst, A. (2002). Sustainability indicators and sustainability performance management. Report to the Project: Mining, Minerals and Sustainable Development (MMSD), International Institute for Environment and Development (IIED). Warwick, England. http://www.iied.org/mmsd/mmsd_pdfs/sustainability_indicators.pdf.

  57. Wood, D. J. (1991). Corporate social performance revisited. Academy of Management Review, 16(4), 691–718.

    Google Scholar 

  58. World Commission on Environment, Development. (1987). Our common future. Oxford: Oxford University Press.

    Google Scholar 

Download references

Acknowledgments

We are thankful to Research Management Institute, University Teknologi Mara for the research grant for this paper.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Rashid Ameer.

Appendices

Appendix 1: Items in the Checklist

Community Index (CI)

  1. 1

    Does the company have a charitable foundation and if so, how much was given during the most recent fiscal year?

  2. 2

    Does the company have exceptional or particularly innovative charitable-giving programs?

  3. 3

    Is the company an industry leader with respect to its performance in Community activism?

  4. 4

    Does the company have exceptional volunteer programs?

  5. 5

    Is there evidence of new initiatives implemented by or awards given to the company with respect to its performance in this category?

  6. 6

    What community programs does the company have in place?

  7. 7

    Does the company have employee volunteer programs?

  8. 8

    Do the company’s volunteer programs involve a large portion of the company’s current and former workforce?

  9. 9

    Does the company participate in public/private partnerships related to education, job training, or urban revitalization and if so, what is the nature of the company’s commitment to them?

  10. 10

    Does the company have partnerships with local schools or community-based groups?

  11. 11

    Does the company have a corporate giving program and if so, how much was given during the most recent fiscal year?

  12. 12

    Is the company committed to donating a given percentage of its pretax profits to charitable organizations and if so, what percentage is the target goal?

Diversity Index (DI)

  1. 1

    Has the company demonstrated a commitment to workforce diversity?

  2. 2

    Does the company actively hire and promote minority and women?

  3. 3

    Has the company demonstrated its commitment to diversity through strong representation of women, minorities, and the disabled on boards of directors, in top management, and/or among the company’s highest paid employees?

  4. 4

    Has the company demonstrated its commitment to diversity through its training and advancement programs (e.g., support networks, management reviews, mentoring)?

  5. 5

    Has the company demonstrated its commitment to diversity through participation in women and minority vendor and banking programs?

  6. 6

    Has the company demonstrated its commitment to diversity through implementation of innovative work/life programs (e.g., flextime, job sharing, child care, elder care)?

  7. 7

    Does the company have programs to train woman for advancement?

  8. 8

    Does the company conduct diversity training for its employees?

  9. 9

    Does the company have a history of violations in the area of abusive labor conditions?

  10. 10

    Does the company have a poor Equal Employment Opportunity Commission (EEOC) record?

  11. 11

    Does the company’s record in this area show a systematic or repeated disregard for the need to foster an open and diverse work environment?

  12. 12

    Does the company have affirmative action programs pertaining to recruitment and promotion?

  13. 13

    Does the company, at a minimum, have in place specifically stated policies against discrimination in hiring and promotion based upon sexual orientation?

  14. 14

    Does the company have a set of standards for its overseas operations and non-U.S. contractors and suppliers?

  15. 15

    Does the company have a board or staff task force or committee set up to address diversity-related issues?

  16. 16

    Does the company clearly exclude women from positions in operating top management?

  17. 17

    Does the company have women and minorities serving in positions with substantial profit and loss responsibilities?

  18. 18

    Does the company have gender equity in wages?

  19. 19

    How does the company portray woman in advertising and marketing materials?

  20. 20

    What is the nature and extent of any civil discrimination lawsuits brought against the company?

  21. 21

    Does the company have an understanding of the need for minority constituencies to have more of a voice in business?

Environment Index (EI)

  1. 1

    Is the company in compliance with environmental laws and regulations?

  2. 2

    What civil lawsuits, particularly those covering overseas issues, has the company been subject to, with respect to its environmental performance in the past 3 years?

  3. 3

    What assets have the company accrues for pollution remediation?

  4. 4

    Does the company have environmental remediation liabilities?

  5. 5

    Does the company have current substantial liabilities for the remediation of asbestos?

  6. 6

    Is the company dedicated to the conservation of energy and natural resources, with emphasis on the impact of operations on the local community?

  7. 7

    Is the company proactive in its environmental efforts?

  8. 8

    Has the company demonstrated a commitment to change, with respect to its environmental performance?

  9. 9

    Has the company developed new products and/or processes that will reduce or minimize environmental impact?

  10. 10

    Has the company adopted new technologies and/or redesigned products to conserve the use of energy, water, materials, and/or land?

  11. 11

    Is the company involved with the new development or use of clean energy, sustainable renewable energy, or natural foods?

  12. 12

    Is the company perceived as an industry leader, with respect to its performance in this category?

  13. 13

    What is the effectiveness of the company’s environmental policies; specifically, are the company’s established programs and/or goals actually improving its environmental performance?

  14. 14

    Has the company taken positive steps toward preserving our environment?

  15. 15

    Does the company have environmental policies in effect with measurable goals, companywide responsibility, and quantitative accountability?

  16. 16

    Does the company have voluntary programs in place, including recycling?

  17. 17

    Does the company have specific environmental policies and if so, what are they?

  18. 18

    What are the company’s major policies to prevent air and water pollution?

  19. 19

    Does the company have an environmental report, including quantitative data on emissions/pollution? What are the company’s levels of emission? What are the company’s levels of environment data, e.g., TRI, spills, etc.?

  20. 20

    What are the company’s recycling efforts?

  21. 21

    Are all company operations (including those abroad) in compliance with environmental statutes?

  22. 22

    What is the nature and amount of EPA violations and fines paid?

Ethical Index (ETI)

  1. 1

    Does the co. have a written Code of Business Conduct used as a guide to help employees live up to the company’s ethical standards?

  2. 2

    Does the code go beyond the legal minimums?

  3. 3

    Does the code include corporate policies dealing with business conduct specifically related to Equal Employment Opportunity?

  4. 4

    Does the code include corporate policies dealing with business conduct specifically related to conflicts of interest?

  5. 5

    Does the code include corporate policies dealing with business conduct specifically related to commercial bribery?

  6. 6

    Does the code include corporate policies dealing with business conduct specifically related to international business relationships?

  7. 7

    Does the code include corporate policies dealing with business conduct specifically related to use and public disclosure of inside info, and the use of confidential and proprietary information?

  8. 8

    Does the code include corporate policies dealing with business conduct specifically related to export compliance and international economic sanctions?

  9. 9

    Does the code include corporate policies dealing with business conduct specifically related to political contributions?

  10. 10

    Does the code include corporate policies dealing with business conduct specifically related to antitrust and competition laws?

  11. 11

    Does the code include corporate policies dealing with business conduct specifically related to health, safety, and environment?

  12. 12

    Does the code include corporate policies dealing with business conduct specifically related to harassment?

  13. 13

    Has the company, its executives, managers, and employees consistently operated within the framework provided by the Code of Business Conduct in the past 3 years?

Appendix 2: CSR Rating Agencies/Organization

S. no. Agency/Organization name Country
1 Accountability Rating UK
2 Allianz Global Investors Germany/UK/France
3 Analistas Internacionales en Sostenibildad SA Spain
4 Arese France
5 ASSET4 Switzerland
6 Avanzi SRI Research Italy
7 Bank Sarasin Co Ltd Switzerland
8 BHF-Bank AG Germany
9 Business Ethics USA
10 Business in the Community (BITC) UK
11 Calvert Group Ltd USA
12 Centre for Australian Ethical Research (CAER) Australia
13 Centre Info SA Switzerland
14 Citizens Advisers Inc USA
15 Co-op America USA
16 CoreRatings Ltd UK
17 Corporate Knights Canada
18 Corporate Monitor Australia
19 Covalence SA Switzerland
20 Danish Governments Pricewaterhouse Coopers Denmark
21 Dutch Sustainability Research BV (DSR) The Netherlands
22 E.Capital Partners SPA Italy
23 Ecos Switzerland
24 Ethibel Belgium
25 Ethical & Environmental Screening Service (ESS) UK
26 Ethical Consumer Research Association (ECRA) UK
27 EthicFinance France
28 Ethiscan Canada Ltd Canada
29 Foundation Ecologisy Desarollo (EcoDes) Spain
30 FTSE Group UK
31 Global Ethical Standard Investment Services AB (GES) Sweden
32 Global Risk Management Services (GRM) UK
33 Goldman Sachs Corporation USA
34 Imug Germany
35 Imug/SECURVITA Germany
36 Innovest Group USA
37 Inrate Switzerland
38 Institutional Shareholder Services (ISS) USA
39 Jantzi Research Inc Canada
40 Johannesburg Securities Exchange South Africa
41 KAYMEA Investment Research & Analysis Israel
42 Kempen Capital Management/SNS Bank UK/The Netherlands
43 Kynder Lydenberg & Domini (KLD) Research & Analytics UK
44 Lombard Odier Darier Hentsch & Chie Switzerland
45 MAALA Israel
46 Name of the agency/organization Country
47 Network for Social Responsibility Economy Switzerland
48 O.D.E. France
49 Oekom Research AG Germany
50 Pictet & Cie Switzerland
51 PIRIC UK
52 Repu Tax Australia
53 Safety & Environmental Risk Management (SERM) UK
54 Scoris GmBH Germany
55 SiRi Company Switzerland
56 STOCK at STAKE Belgium
57 Sustainable Asset Management (SAM) Group Holding AG Switzerland
58 Sustainable Investment Research Institute (SIRIS) Pty Australia
59 Triodos The Netherlands
60 UBS (Union Bank of Switzerland) Switzerland
61 Verite USA
62 Vigeo France
63 Vonix Austria
64 Westpac Investment Management Corporation Australia
65 Zurcher Kantonalbank Switzerland

Appendix 3: Item-by-Item Analysis

Community Index (CI)

Items Mean Std. deviation N
11. Corporate giving program and amount given 3.10 1.51 98
10. Partnership with local Schools or community-based groups 3.05 1.56 98
9. Public/private partnership 2.99 1.62 98
6. Community programs 2.85 1.58 98
7. Employee volunteer program 2.56 1.72 98
2. Exceptional and innovative charitable-giving programs 2.39 1.58 98
8. Current and former workforce volunteering (in percent) 2.14 1.72 98
4. Exceptional volunteer program 1.92 1.61 98
1. Contribution to charitable foundations 1.52 1.82 98
3. Performance in community activism 1.42 1.72 98
5. New initiative and awards received 1.31 1.82 98
12. Commitment to donating 0.51 1.32 98
  1. Note: 12 items were used to assess companies’ disclosure related to community. The companies scored the highest for item 11. The companies scored the lowest on item 12

Diversity Index (DI)

Items Mean Std. deviation N
1. Commitment to workforce diversity 2.74 1.68 98
12. Recruitment and promotion 2.50 1.77 98
2. Hiring and promoting minority and women 2.41 1.75 98
14. Standards for overseas operations 2.13 1.88 98
6. Implementation of innovative work/life programs 1.91 1.88 98
3. Representation of women and minorities 1.83 1.86 98
13. Discrimination in hiring and promotion 1.48 1.85 98
21. Minorities constituents to have more of a voice 1.39 1.34 98
7. Women’s training for advancement 0.99 1.62 98
4. Training and advancement programs on diversity 0.97 1.6 98
15. Diversity-related issues 0.91 1.64 98
19. Women in advertising and marketing materials 0.74 0.88 98
5. Participation in women and minority programs 0.72 1.38 98
17. Women and minorities at position with substantial profit (loss) 0.7 1.46 98
8. Diversity training for employees 0.69 1.43 98
18. Gender equality in wages 0.14 0.7 98
9. History of violations—abusive labor conditions 0.05 0.41 98
16. Exclusion of women from top management position 0.04 0.24 98
20. Civil discrimination lawsuit against the company 0.04 0.24 98
10. Equal employment opportunity 0.01 0.1 98
11. Open work environment 0.01 0.1 98
  1. Note: 21 items were used to assess companies’ disclosure related to diversity. The companies scored the highest for item 1 and the lowest for items 10 and 11, respectively

Environmental Index (EI)

Items Mean Std. deviation N
1. Written code of business conduct 2.78 1.63 98
2. Beyond the legal minimums 2.54 1.85 98
3. Equal employment opportunity codes 2.16 1.74 98
4. Conflict of interest 1.64 1.78 98
5. Commercial bribery 1.64 1.76 98
6. International business relationships 1.36 1.64 98
7. Use of confidential and proprietary information 1.31 1.58 98
8. Export compliance and international economic sanctions 1.28 1.66 98
9. Political contributions 1.15 1.49 98
10. Antitrust and competition laws 1.07 1.44 98
11. Health, safety and environment 1.01 1.48 98
12. Harassment 0.77 1.09 98
13. Operated within framework of code of business conduct 0.6 0.88 98
  1. Note: 13 items were used assess companies’ disclosure related to ethical practices. The companies scored the highest for item 1 and the lowest mean was for item 6

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Ameer, R., Othman, R. Sustainability Practices and Corporate Financial Performance: A Study Based on the Top Global Corporations. J Bus Ethics 108, 61–79 (2012). https://doi.org/10.1007/s10551-011-1063-y

Download citation

Keywords

  • Environment
  • Ethics
  • Diversity
  • Performance
  • Sustainability