The Impact of Sustainability Practices on Corporate Financial Performance

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The necessity of building sustainable businesses as a new type of companies is an issue that has been widely discussed over recent years. A growing number of public members, politicians, and activists demand more ecological, social, and economic responsibility from industries. Due to this increased demand, companies are forced to reevaluate and change their priorities, allocating resources to ensure a new sustainable approach in their operations.

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The present paper aims at presenting a review of relevant studies conducted on the topic of sustainable business and its influence on corporate behavior and firm performance. Due to a large number of available sources and publications dedicated to the issue, only several works were included in the essay. All of them were published not later than 2016 and are dedicated to the practical matters of sustainability business organization that could be used in further research.

Sustainability and Corporate Behavior

Building a strategy that incorporates sustainable development has become a primary focus for many companies. Sustainability goals that many businesses are acquiring now influence not only the ways they use resources and organize production but also how they operate on a day-to-day basis. This transformation aspect is particularly important as it reflects the recent trend, acknowledged by the scholars, that manifests itself in replacing the general concept of sustainability with the notion of corporate social responsibility (CSR) (Alshehhi et al., 2018).

This shift in focus means that nowadays, the strain for sustainability presupposes, in the first place, concentration on people, and not the environment, as it was in the previous years. Therefore, a large amount of research is dedicated to the changes in companies’ corporate behavior.

One of the examples of how sustainability affects corporate behavior can be found in the study dedicated to building corporate sustainability strategy in the automotive industry. Engert and Baumgartner (2016) demonstrate how a focus on sustainability requires building up an effective strategy that – together with changes in organizational structure and processes – would lead to changes in corporate culture and behaviors.

The scholars notice, “A strategy cannot be implemented successfully without motivated employees” (Engert & Baumgartner, 2016, p. 831). Therefore, the integration of sustainability into the company’s culture requires changes in attitudes and values of employees.

However, the sustainability vector brings change also to the way how companies position themselves to the world and what new roles they might want to acquire. As noted by Baumgartner and Rauter (2017), “businesses are central actors in any societal transition towards sustainability” (p. 89).

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Therefore, companies become not only producers or service providers, but leaders of global change. In this connection, the researches propose several strategic management activities that involve changes in production, allocation of resources, competition, and – most importantly – corporate values, attitudes, and beliefs. This involves raising sustainability awareness in each department, establishing continuing learning, and defining short-term and long-term goals in alignment with both business and societal goals.

Sustainability and Firm Performance

Strive for sustainability impacts corporate behavior and culture by making companies focus more on employees and their values and attitudes. However, it is essential to acknowledge that despite this societal mission, businesses are still evaluated based on their performance. Although the scholarship does not provide a universal and direct answer on whether attempts to establish a more sustainable business affect firm performance positively or negatively, the overall assessment is relatively positive.

The recent studies continue to consider the connection between sustainability and the company’s performance and make conclusions about the positive effect of this relationship.

One of the most exciting research results has been acquired by the international team of researchers comprising of scholars from Spain and Hong Kong. Wiengarten, Lo, and Lam (2017) have implemented a study on how adding a chief officer of corporate social responsibility (CSR) to the top management team affects the firm performance.

The analysis of secondary, longitudinal data on a range of U.S. companies revealed that appointing a CSR officer might be financially beneficial. Moreover, they tested the importance of different characteristics of the CSR candidacy. They found out that “the impact of the appointee on performance is increased if the person is a female and has a CSR functional background” (Wiengarten, Lo, & Lam, 2017, p. 488). This study has the potential for further research that might bring more insights into the positive effect of sustainability.

Another study that demonstrates it is the article by Schönborn, Berlin, Pinzone, Hanisch, Georgoulias, and Lanz (2019) where they examine how social sustainability of corporate culture can serve as a predictor for a company’s financial success. The researchers demonstrate how a corporate strategy and leadership based on the principles of openness, responsibility, mutual trust and respect to learning and communication are directly connected to the positive firm performance.

Moreover, enabling employees, caring for their well-being, and building up their loyalty can also be contributing factors which define the business’ prosperity. The research was done based on the results of two European polls, which opens opportunities for further studies in East Europe, America and Asia.

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One more recent study performed in the United States and focused on the impact of sustainability training and knowledge on sustainable supply chain practices (SSCP), supply chain outcomes (SSCO) and firm performance also gave positive results. Birou, Green, and Inman (2019) present the results of the research that showed that “organizational sustainability knowledge and training is positively associated with improved supply chain practices” (p. 304). These improvements included decreased energy and material use, and reduction in emissions and waste. It consequently has a favorable effect on operational and economic performance.

Moreover, it was found out that investors use the information on companies’ environmental, social, and governance priorities when making investment decisions. Thus, the recent research shows that “integration of ESG priorities into strategy does not have a significant effect on investors’ price assessments or investment allocation’ (Espahbodi et al., 2019, p. 149). However, what is interesting, the effect is increased when the integration of ESG priorities is presented alongside with financial performance of the company, and their perceived relevance and reliability.

Conclusion

The present paper offered a short literature review of the most relevant works on the topic of sustainability and its impact on different aspects of corporate operations. Focused on the influence of sustainability strategy on corporate culture and firm performance, all the studies have provided significant insights into the matter.

Although they differ in methods and have their limitations in terms of geographical and data scope, the findings of the researches have substantial implications for managers and business developers as they provide a basis for implementing sustainability strategies. Moreover, they opened up possible paths for further study: it seems particularly interesting to dwell on the connection between the personal characteristics of the CRM executives and firm performance.

References

Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability, 10(2), 1-25. Web.

Baumgartner, R. J., & Rauter, R. (2017). Strategic perspectives of corporate sustainability management to develop a sustainable organization. Journal of Cleaner Production, 140, 81-92. Web.

Birou, L., Green, K. W., & Inman, R. A. (2019). Sustainability knowledge and training: Outcomes and firm performance. Journal of Manufacturing Technology Management, 30(2), 294-311. Web.

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Engert, S., & Baumgartner, R. J. (2016). Corporate sustainability strategy – bridging the gap between formulation and implementation. Journal of Cleaner Production, 113, 822-834. Web.

Espahbodi, L., Espahbodi, R., Juma, N., & Westbrook, A. (2019). Sustainability priorities, corporate strategy, and investor behavior. Review of Financial Economics, 37(1), 149-167. Web.

Schönborn, G., Berlin, C., Pinzone, M., Hanisch, C., Georgoulias, K., & Lanz, M. (2019). Why social sustainability counts: The impact of corporate social sustainability culture on financial success. Sustainable Production and Consumption, 17, 1-10. Web.

Wiengarten, F., Lo, C. K. Y., & Lam, J. Y. K. (2017). How does sustainability leadership affect firm performance? The choices associated with appointing a chief officer of corporate social responsibility. Journal of Business Ethics, 140, 477-493. Web.

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BusinessEssay. (2022, November 26). The Impact of Sustainability Practices on Corporate Financial Performance. Retrieved from https://business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/

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BusinessEssay. (2022, November 26). The Impact of Sustainability Practices on Corporate Financial Performance. https://business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/

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"The Impact of Sustainability Practices on Corporate Financial Performance." BusinessEssay, 26 Nov. 2022, business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/.

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BusinessEssay. (2022) 'The Impact of Sustainability Practices on Corporate Financial Performance'. 26 November.

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BusinessEssay. 2022. "The Impact of Sustainability Practices on Corporate Financial Performance." November 26, 2022. https://business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/.

1. BusinessEssay. "The Impact of Sustainability Practices on Corporate Financial Performance." November 26, 2022. https://business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/.


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BusinessEssay. "The Impact of Sustainability Practices on Corporate Financial Performance." November 26, 2022. https://business-essay.com/the-impact-of-sustainability-practices-on-corporate-financial-performance/.