Factors Affecting the Sustainability of Corporates in Polluting Sectors

Abstract

Corporate sustainability performance is gaining ever greater importance. The negative impact of climate change is manifested through heavy air, water and soil pollution. Polluting sectors, as the major players, are characterized by large amounts of emissions, waste and consumption of resources, and therefore have a larger negative impact on the environment. Companies operating in polluting sectors are recognized globally as the main sources of greenhouse gas emissions; thus, their performance is widely debated. Despite their character, such companies strive for higher profitability, better financial performance and operational efficiency. However, higher financial resources create the potential for innovation investments in companies. It is widely accepted that research and experimental development (R&D) expenditures enable new business ideas, models, products, services, and processes. However, while pursuing sustainability targets, financial results could be directed towards sustainability performance. The purpose of this paper is to analyze how the financial and innovation results of companies in polluting sectors interact with sustainability performance scores. For it, we have identified three essential pillars of sustainability: environmental, governance, and social. Using ordinary least squares (OLS) regressions, models were developed for each pillar of sustainability, including corporate financial performance indicators and R&D expenditures. The obtained results provide the insights that a company operating in polluting sector size and turnover significantly interacts with all pillars of sustainability. However, we also found that the corporate debt ratio, earnings ratio, and current liquidity have a significant relation only with environmental and social sustainability indicators.