Relationship between corporate sustainability performance and corporate financial performance: evidence from U.S. companies

Agnieszka Matuszewska-Pierzynka

doi:10.24136/eq.2021.033

Abstract

Research background: Sustainable development at the enterprise level is understood as the integration of economic, environmental and social dimensions aimed at meeting the needs of all firm?s stakeholders in the present and in the future. Therefore, it is crucial to evaluate the relationship between economic, environmental and social sustainability performance of a company and its financial performance. Purpose of the article: Considering the business model for sustainability as well as the debatable results of empirical research on the relationship between corporate sustainability performance (CSP) and corporate financial performance (CFP), the essential aim of the paper is to answer the question whether the improvement of corporate sustainability performance in its all particular dimensions brings about higher total revenues (TR) of a company. Methods: The main method of empirical research is panel regression models based on Cobb-Douglas production function, which has been extended to include variables of corporate sustainability scores. The selection between pooled OLS model, random-effects model and fixed-effects model has been made with the use of the F test, the Breusch-Pagan test and the Hausman test. Additionally, descriptive statistics and the Pearson correlation coefficients have been analyzed. The empirical studies were conducted in the period 2014?2019 among the 59 largest U.S. companies listed in the Fortune 500 ranking between 2015?2020. Findings & value added: The research hypothesis assuming the existence of positive relationship between corporate sustainability performance (CSP) at both aggregate and disaggregate levels and corporate financial performance (CFP) expressed by TR cannot be positively verified. It means that the improvement of corporate sustainability performance in environmental, social and governance dimensions does not lead to an increase in TR of a company, as some empirical studies suggest.

Highlights

In the classical approach, sustainable development is understood as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (WCED, 1987, p. 41)
Bearing in mind the described corporate sustainability model, as well as the debatable results of empirical research on the relationship between corporate sustainability performance (CSP) and corporate financial performance (CFP), the essential aim of the paper is to answer the question whether the improvement of corporate sustainability performance in its all particular dimensions brings about the higher total revenues of a company
Walmart Inc. is the largest U.S company in terms of total revenues and the average employment with the average value of fixed assets, which in the years 2015–2019 was higher than its mean for all firm-year observations

Summary

Introduction

Sustainable development is understood as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (WCED, 1987, p. 41). Sustainable development is understood as development that meets the needs of the present without compromising the ability of future generations to meet their own needs The concept of sustainable development has evolved over the years, steadily shifting its attention from the environmental area to social and economic areas as well as from the global level to national and local or even corporate levels The corporate sustainability can be described as meeting the needs of firm's direct and indirect stakeholders (...) without compromising its ability to meet the needs of future stakeholders It is necessary to emphasize that the pre-condition for economic, environmental and social sustainability of a company is good governance, currently treated as the fourth dimension of corporate sustainability It is necessary to emphasize that the pre-condition for economic, environmental and social sustainability of a company is good governance, currently treated as the fourth dimension of corporate sustainability (UN, 2012, p. 65; UNSDSN, 2013, p. viii)

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