Nexus between Corporate Sustainability Performance and Corporate Financial Performance

Abstract

Sustainability is the key factor considered by almost all nations for the long-term survival of human beings and conservation of life on our planet . The 17 Sustainable Development Goals or SDGs initiated by UN is also leading to the wider acceptance of sustainability practices by nations. Every country has its own sustainability measures adopted in various facets like education, poverty reduction, gender equality and climate action to name a few. The poignant role of corporates is recognized by the governments of all nations as the resources available at the disposal of corporates is humongous and the corporate actions affect the welfare of the society and the sustainability of the planet. The focus on corporate sustainability is unprecedented - companies are trying to achieve it through their strategic business actions, regulators and governments are fostering it through policies, incentives and regulations. The agency theory establishes the need for the firm to maximise shareholders wealth without considering its impact on other stakeholders. Milton Friedman s stockholder theory postulates that executives are agents who work for the principal - the stockholders. The social network theory propounds the existence of a social contract theory between business and society. The legitimacy theory also supports the proposition that a firm has to prove its legitimacy to its stakeholders for sustaining profitability and existence. Edward Freeman s stakeholder theory (1984), a normative business ethics theory challenges stockholder theory by arguing that there are other stakeholders like employees, customers, competitors, government, society, environment, suppliers, political groups etc. According to him these stakeholders get affected by the actions of the corporates negatively or positively. A firm creates value when it adopts the stakeholder theory in its actions and becomes socially responsible and sustainable. Corporate sustainability is measured using the three aspects of the performance of a firm viz., Environmenta