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 market-based 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.
Highlights
Business is a remarkable social invention (Jensen and Meckling 1976) of the contemporary world, consisting of firms that are a part of and emanate from society (Branco and Rodrigues 2006)
We have used the Fixed Effect (FE) regression method to do the analysis based on the outcome of the Hausman test and Granger Causality (GC) for assessing the bidirectional causality among corporate sustainability performance (CSP)-corporate firm performance (CFP) variables
Our overall findings reveal an absence of causality among most of the CSP-CFP variables in either direction except some causality detected for non-Environmental sensitive industries (ESI) firms
Summary
Business is a remarkable social invention (Jensen and Meckling 1976) of the contemporary world, consisting of firms that are a part of and emanate from society (Branco and Rodrigues 2006). (environment), equity (society), and prosperity (economy) (Bansal 2005), later ideated as “Triple bottom line”(TBL) concept (Elkington 2011). Among these three goals, pursuing the first two is likely to enhance the third goal (Placet et al 2005), aligning with the value maximization (Appelbaum et al 2016) goal of the firm. As India contributes to the world GDP with high growth business activities, it needs to play a substantial role in sustainability too. The country is increasingly playing a global role because of many strengths, such as the global presence of Indian diaspora, entrepreneurial interest and culture, robust confidence from investors, highly skilled english-speaking personnel, stable political scenarios, and supportive government initiatives (Agrawal et al 2017). Indian government launched programs like Swachh Bharat Abhiyan (focused on cleanliness and sanitation), Pradhan Mantri Ujjwala Yojna (focused on less emissions in household cooking), Pradhan Mantri Jan Dhan Yojana (focused on financial inclusiveness), Pradhan Mantri Jan Arogya Yojna (focused on universal health coverage) and No single-use plastic, which are directed towards various dimensions of environment and social factors
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