Correlating Sustainabilty and Financial Performance - What Measures Matter? A Study in the Pulp and Paper Industry

Abstract

A meta analysis of key performance indicators (KPI) for a wide range of companies across the paper industry value chain was performed to understand whether disclosure- or performance-based sustainability metrics were better indicators for financial performance of the firms. The study aimed to contribute to theory development on the link between sustainability and competitiveness of the firm, by conducting a multivariate statistical analysis of a wide range of financial and sustainability metrics. Correlation matrices and principal component analysis (PCA) indicated: (i) a slight positive correlation between GHG emissions and disclosure score (e.g. ESG), (ii) a negative correlation between GHG emissions and financial performance (e.g. ROA, stock price, valuation), and (iii) disclosure based measures are better predictors or corporate sustainability performance (CSP) than are performance-based metrics. Targeted correlation analysis using three principal component indicator variables from four models were inconclusive as to links between sustainability and financial indicators. Even though companies clustered along the ESG score spectrum, there was no relationship with financial metrics. Then performance-based CSP scores were used, no clustering was observed. The lack of validation of the results from the meta analysis using the targeted KPIs was likely due to the loss of resolution of environmental sustainability data in the ESG or CSP scores, which mask trends as the result of decreased sensitivity. Future work should focus on preserving higher granularity of metrics and increased use of multivariate statistical tools to increase the ‘signal-to-noise ratio’ for sustainability-financial performance trends.