Corporate sustainability and its impact on financial performance in Indian context

Abstract

For years, researchers have been discussing the linkage between corporate sustainability and the financial performance of entities. Two schools of thought have emerged, one arguing that sustainability has negative effects on financial performance while the other suggests a positive impact. However, despite extensive research there is no conclusive evidence to support either view. This study aims to re-examine this phenomenon specifically within the Indian context by analyzing the Sustainability Reports and Business Responsibility Reports of top-tier entities listed on the Bombay Stock Exchange. The study created a sustainability index based on both international and national guidelines to assess its impact on the corporation s financial performance. To quantify the sustainability performance, the study employed a content analysis technique using binary technique, values 1 and 0. Subsequently, the scores obtained from these reports were converted into percentage values. A higher percentage signifies a higher level of sustainability performance disclosure. Thus, by employing the content analysis method, we calculated the performance of sustainability in each dimension, as well as within each theme. The study has revealed that Indian companies are still in the early stages of adopting and publishing sustainability reports. Later, the study applied panel data regression techniques to find the impact of sustainability disclosure on a firm s financial performance. The results reveal a positive and statistically significant sustainability effect on key financial performance indicators for example Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS). The study also examined the indicators that have received specific attention and highlighted areas where Indian companies are falling behind, as well as the financial value associated with these indicators. This information can be used by policymakers to introduce or strengthen regulations in areas where attention is needed. Hence the study adds to