Corporate Sustainability and Financial Performance: An empirical study of the moderating impact of compliance with sustainability reporting standards on the relationship between corporate sustainable performance and corporate financial performance.
MetadataShow full item record
- Master Thesis 
Identifying a link between corporate sustainability performance (CSP) and corporate financial performance (CFP) can be critical in convincing companies to be more responsible, whether in terms of correcting their own questionable behaviour or addressing social concerns. Despite the increasing discussion, the results continue to suggest inconsistency. The exclusion of important variables, such as the use of sustainability reporting standards (SRSs) in the econometrical estimate procedure, may explain this inconsistency. Given the voluntary nature of sustainability reporting, companies choose whether, and to what degree, to align their respective sustainability report with an SRS. The extant literature lacks knowledge on the implications SRS compliance has for the CSP-CFP relationship, and it does not identify if the relationship varies due to differences in the level and scope of SRS compliance. We therefore analyse the moderating effects SRSs of varying level and scope have on the CSP-CFP relationship. We employ a moderated multiple regression to test the above relationship by including 1,822 observations from 335 listed UK companies within the period from 2010 to 2018. We have included the use of partial or full compliance with impact- or financial-material SRSs in the regression models as moderating variables on the relationship between CSP and CFP. The results indicate that SRSs have a moderating effect on the CSP-CFP relationship, with the nature of the moderation depending on the level and scope of the SRS compliance. This supports the prediction that ambiguous results may stem from the exclusion of important variables, such as SRS compliance. First, our results suggest that partial compliance with impact-material SRSs increases the impact of CSP on CFP. Second, our results indicate that both compliance levels of financial-material SRSs decrease the effect CSP has on CFP. The findings imply that summary measures for CSP have a reduced impact on CFP if the SRS compliance increases the informativeness of the sustainability report. This has implications for how stakeholders, including investors, assess a company’s CSP. The results also have inferences for how a company can identify the most effective strategies to combine CSP and the reporting of this performance for the highest potential profitability. Thus, the relevance of this study derives from it advancing the knowledge on the CSP-CFP relationship by suggesting the importance of SRS compliance level and scope for the impact CSP has on CFP.