Relationship between sustainable development initiatives and improved company financial performance: A South African perspective

Darelle Groenewald,Jonathan Powell

doi:10.4102/ac.v16i1.298

Abstract

Orientation: Companies are under ever-increasing pressure from both internal and external stakeholders to consider the environmental and social impacts of their operations and to mitigate these impacts. This necessitates an investigation into the effect of sustainability initiatives on the financial performance (FP) of a company.Research purpose: The study analysed the relationship between sustainability performance and FP in South African listed companies.Motivation for the study: Some South African listed companies acknowledge in their sustainability reports that there is a link between sustainability development and long-term shareholder value. This implies that FP is linked to sustainable development performance. This relationship has not been researched for South African listed companies and therefore needs to be investigated.Research design, approach and method: A similar research method was used as for an international study. Forty-five listed South African companies were selected as the sample. Their sustainable development reports were used for analysis. Data were analysed with the use of content and a canonical correlation analysis.Main findings: The results of the study revealed that an overall positive relationship exists between sustainability performance and FP. Practical implications: South African companies that have a high involvement and focus on specific sustainable development initiatives that are integrated into overall sustainable development strategy can deliver improved FP for the organisation and deliver long-term value to its shareholders.Contribution: Six sustainable development aspects were found to be significantly correlated with improved FP and if incorporated into a company’s sustainable development strategy can lead to increased successes.

Highlights

The concept of sustainable development has evolved over time but it is not since 1987, after the release of the Bruntland Commissions report (1987) on sustainable development, that companies have really started embedding the concept into how they operate, strategise and communicate within their markets
Our research study replicates the research design and methodology of Montabon et al (2007) titled ‘An examination of corporate reporting, environmental management practices and company performance’ within the South African context
Sustainable development is important for the well-being of the environment and humanity

Summary

Introduction

The concept of sustainable development has evolved over time but it is not since 1987, after the release of the Bruntland Commissions report (1987) on sustainable development, that companies have really started embedding the concept into how they operate, strategise and communicate within their markets. The financial crisis of 2008 has led to a shift in how companies operate. One of these shifts has been to focus on profit, but more consideration has been given to the environment and society. Dimitrov and Davey (2011:86) state that despite the benefits that companies accrue from business transactions, such as technological and economic progress, companies are faced with increasing criticism for creating social and environmental problems. Companies can no longer only focus on achieving financial gains without taking into consideration the effects this has on the environment and the people (Brundtland 1987)

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