Sustainability Reporting in Slovenia: Does Sustainability Reporting Impact Financial Performance?

Abstract

The study aims to clarify the link between corporate sustainability and financial performance where corporate sustainability reporting is used as a proxy for sustainability. By voluntary reporting on corporate sustainability, firms try to minimize political/social costs and benefit from long-term relations with key stakeholders, minimizing risks of burdensome environmental and labor regulation, attracting and keeping best talents, enhancing firm reputation, and broadening the customer base. We use regression analysis on a sample of 80 Slovenian companies. Results indicate that corporate sustainability leads to better financial performance in the first year, in the second year, and in the first 3 years after measuring corporate sustainability while controlling for size, indebtedness, industry, and quotation. The study does not find a link between average historical financial performance and subsequent level of corporate sustainability, indicating that the relationship is one sided. The study includes implications for managers for making informed resource allocations toward corporate sustainability and understanding the sustainability business case.