Relationship between Corporate Sustainability Practices and Financial Performance: Evidence from the GRI Reporting Companies

Abstract

This main purpose of this study is to examine the relationship between corporate sustainability practices and financial performance, using a cross-sectional sample of the listed UK and US companies.

We comprehensively reviewed and evaluated the sustainability reports of the companies, which were prepared using the GRI sustainability reporting guidelines, and investigated how companies have addressed concerns related to community, diversity, environmental performance, and ethical practices from 2005 to 2009. We developed four indices derived from companies’ disclosure on community, diversity, environment, and ethical codes or standards of practices mirroring business-case arguments for corporate sustainable practices.

We find an increase in the disclosure of activities underlying the diversity and ethical practices after 2008, which might be related to public demand in these countries for more transparency and concerns about ethical practices after the global financial crisis. Our results show that the UK companies’ disclosures are higher than the US companies’ in relation to community, diversity, environment, and ethical practices. Our empirical results show those global companies’, which are promoting workforce diversity, recruitment, and promotion, and active participation in other diversity related issues have positive effect on financial performance after controlling for the industry characteristics and growth opportunities.

The research findings implies that innovation in computing power and language would ease the choice of reporting medium in future, in this regard, XBRL is one of the way forward that could used for reporting on sustainable development in real time.

This is the first study to have examined the sustainable business practices of the global companies using GRI sustainability reporting guidelines over the period of 5 years.

Keywords: community, diversity, ethics, environment, financial performance, sustainable development, UK, US.