The Impact of Corporate Sustainability Performance on Corporate Financial Performance

Challenges derived from the environmental issues are becoming more and more evident nowadays, raising concerns around all fields and industries, reaching the point that it has become a worldwide concern to address the negative impact on the environment, which has become a threat to the fragile world’s balance. However, despite the increasing awareness in the last decade and the fact that society now is getting more engaged in participating and contributing to finding solutions on an individual, corporate, industrial, and social level. There is still a lack of practical tools and a proper structure, and a deep understanding to become change markers while achieving a more significant impact by actively creating solutions to environmental issues from a company’s financial policies. Moreover, fields like finance are becoming an important tool to increase the implementation and development of projects to reduce the impact of economic activities on the environment and enhance the participation of all economic agents. Research from different points of view creates substantial incentives while promoting the allocation of sources towards creating new policies inside companies and motivating a change in people's mindset, engaging them actively to work in developing mechanisms to contribute to the solution of environmental issues. Considering the primary motivation comes from the classic financial approach based on the risk-return model, it is time to move further and develop a new approach, to transcend this paradigm and start thinking about the benefits that can be achieved in the medium-long term by creating value in companies through the adoption of sustainability across all areas of the business. Considering that sustainability is a topic in constant development and evolution, that can be measured in several ways and with different kind of variables, the purpose of this study is to analyze the relationship between a set of variables related to corporate sustainability and the corporate financial performance to contribute to the existing literature and expand the understanding on this subject. The main objective is to understand whether this relation implies a positive or negative impact on the financial performance which will be crucial to help policy makers and managers to develop more integral business strategies that consider the interest of all agents and stakeholder involved more consciously. Consequently, since sustainability is understood either from the corporate social responsibility (CSR) or the Environmental Social Governance (ESG). Thus, the novelty of this study resides on the fact that the variables used for the analysis capture more dimensions of sustainability since they involve several elements from both the traditional CSR & the newer ESG approaches. By using a different set of variables the multidimensionality of sustainability inside a corporation can be explored differently from the previous existing. In this context, this research can be useful for managers and all the stakeholders involved in the development of financial policies inside a company whom by increasing their knowledge on the importance of the integration of the different spheres of sustainability in the strategy of development can contribute from their positions to shape the financial performance and decisions while foreseen financial benefits and moving beyond the traditional risk-benefit. This traditional approach to business and financial strategies has proven simplistic compared to the rapid evolution of the companies and markets.