Impact of Sustainability Reporting on Financial Performance

Abstract

(1) Purpose: This study aimed to investigate the relationship between Sustainability Reporting (SR) and financial performance and put forward the effect of the SR on financial performance. (2) Methodology: In order to test our hypothesis that financial performance increases the likelihood of firms reporting sustainability, a regression model was built based on the data of firms included in the Borsa Istanbul Stock Market Sustainability Index. Independent variables included in the model are Return on Assets (ROA) and Return on Equity (ROE) values, which are considered as financial performance indicators. Application of sustainable report is a dependent variable of the model. (3) Results: Company size had a positive effect on sustainability activities, while profitability had no significant effect. Large firms were usually more willing to play a role in social and environmental issues and explain their strategies on these issues. (4) Conclusions: It is important for firms to implement sustainability initiatives inside the firms from a strategic point of view, not as a result of pressure from stakeholders, such as official institutions, non-governmental organizations, suppliers or consumers. (5) Implications: With the linear regression estimation performed, the causal relationship between sustainability and financial performance has quantitatively demonstrated the positive effect of sustainability on financial performance. The main purpose of the study is to reveal the importance of publishing a sustainability report for firms and raise their awareness, thus examining the long-term effects of publishing the report. It is suggested that future research may investigate possible differences of sustainability according to the development levels of markets and countries.