Pham et al.

, Cogent Business & Management (2021), 8: 1912526

https://doi.org/10.1080/23311975.2021.1912526

ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS ETHICS |

RESEARCH ARTICLE
The impact o sustainability practices on inancial
perormance: empirical evidence rom Sweden
Duc Cuong Pham1*, Thi Ngoc Anh Do2, Thanh Nga Doan1, Thi Xuan Hong Nguyen3 and
Received: 01 January 2021 Thi Kim Yen Pham4
Accepted: 31 March 2021

*Duc Cuong Pham School of Abstract: This study aims at empirically exploring the inluence o sustainability
Accounting and Auditing, the practices on the inan cial perormance o 116 listed Swedish companies in the year
National Economics University,
Vietnam 2019. The research indings indicate a positive relationship between corporate
Email: [email protected]
sustainability and inancial perormance that is measured by earnings yield, return
Reviewing editor: on asset, return on equity and return on capital employed. However, when it comes
Albert W. K. Tan, Asia Pacific
Graduate Institute, Shanghai Jiao to a market-based inancial measure, Tobin’s Q, the result is inconclusive. Finally, to
Tong University, SINGAPORE
improve inancial perormance, irms are recommended to engaging in Dow Jones
Additional information is available at Sustainability Index, prepare their sustainability report in accordance with Global
the end of the article

ABOUT THE AUTHOR PUBLIC INTEREST STATEMENT

Duc Cuong Pham We have been dealing with the need for sustain-
Cuong Pham is Associate Proessor o ability– defined as development that meets the
Accounting at School o Accounting and needs of the current generation without affecting
Auditing- The National Economics University, future generations. Sustainable development
Vietnam. His research interests include inancial requires economic entities to align sustainable
accounting, management accounting, inancial development goals with operational strategies.
statement analysis, earnings management, CSR, This study empirically explores the influence of
and accounting inormation system. green initiatives on the financial results of listed
Thi Ngoc Anh Do Swedish companies. The paper finds that there is
Anh Do was master student at Banking a positive relationship between sustainability per-
Academy o Vietnam. Currently, she is indepen- formance and financial success. From the results,
dent researcher. Her research interests include the research calls on to firms’ managers to con-
integrated reporting, sustainability and CSR. form to the sustainability practices. The microeco-
Thanh Nga Doan nomic policies should aim to enhance sustainable
Nga Doan is an accounting lecturer at School o growth rate towards the growth of the company
Accounting and Auditing- The National with its performance. In addition, the government
Economics University, Vietnam. Her research should define a target to keep track of the sus-
interests include inancial accounting and tainable guidelines and foster a qualitative report-
reporting, management accounting, sustainabil- ing by national companies. Stronger measures are
ity, and auditing. bound to be introduced, and legislation with com-
Thi Xuan Hong Nguyen pulsory consequence analysis ought to be pro-
Hong Nguyen is accounting lecturer at Hanoi posed, so that companies can follow.
University o Industry, Vietnam. Her research
interests include inancial accounting and
reporting, management accounting, sustainabil-
ity, and inancial perormance.
Thi Kim Yen Pham
Yen Pham is an accounting lecturer at Vinh
University, Vietnam. Her research interests
include inancial accounting and reporting,
management accounting, sustainability, and
balanced scorecard.

© 2021 The Author(s). This open access article is distributed under a Creative Commons
Attribution (CC-BY) 4.0 license.

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Reporting Initiative (GRI) Standards, improve their sustainable growth rate, as well
as keep a high position in the corporate social responsibility ranking.

Subjects: Accounting; Financial Accounting; Management Accounting

Keywords: sustainability; sustainable development; green initiatives; financial

performance
JEL code: G18; G30; G32

1. Introduction
Sustainability is an emerging and rapidly growing interdisciplinary ield o research, closely related
to the economic implications o environmental issues or dierent industries and irms, and the
need o transition to a sustainable economy. Yet, there is no denying that the practices o
sustainable development have triggered transormation in a wide range o industries. In this
regard, many companies are already aware o the signiicance o latest trends and are making
use o go-green business models with integrated corporate social responsibilities, while larger,
more established corporations are moving towards the production o more environmentally
riendly and sae goods to meet social demands (Sauve, Bernard, Sloan (Sauve et al., 2016).

To deal with the consequences o climate change, human beings have been trying to ind new ways
o revolutionizing the economy. In the decades ollowing World War II, development was deined
primarily in economic terms and measured by growth in countries’ gross domestic product (GDP) and
per capita incomes (Harrison, 1996). Nevertheless, several authors in the late 1980s and early 1990s
proposed a dierent theory about what constituted development, conceptualized as “human devel-
opment” (Desai, 1991; Streeten, 1994). Accordingly, development needs to be about human well-
being, expanding people’s choices and reedom. Though important, economic growth is not suicient
or ull development. Over the past three decades, in parallel with human development, another
powerul concept—sustainable development—also attracts a great deal o attention rom scholars
and authors on the discussion o new economic models (Khasanov, 2016). These two mutually enrich
each other and gradually conirm the idea that i not being sustainable, the development path cannot
claim the title o human development. There may exists some dierence in theoretical approaches,
however, human being is at the center o these concepts.

For years, responding to environmental issues has always been a no-win proposition or busi-
nesses (Walley & Whitehead, 1994). In this new world, both the businesses and the environment
can be winning. Put it another way, going green is no longer an obstacle o doing business, as it is
a catalyst or renovation and innovation, new market opportunities and the wealth maximization.

This paper is intended to contribute to the debate o assessing and orecasting the dynamics o
a sustainable development in Sweden—a developed country in Northern Europe, especially where
there have been a ew researches about this relation in the contemporary era. Through integrating and
expanding the previous theoretical ramework o sustainability evaluation, the thesis aims at empiri-
cally quantiying the relationships among critical actors (economic development, social values,
resources and environment) that aect the corporate inancial perormance. The research relevance
is deined by the need o establishing a theoretical and empirical basis o sustainability practice or the
transition era and identiying evaluative criteria or assessing its impact on business inancial situation.

The paper includes ive main parts. The irst is introduction, then the literature review and
hypothesis, the methodology, empirical results and analysis, and conclusion and recommendation.
2. Literature review and Hypothesis development
Although sustainability is a modern problem in the economies o developed world, the paper is
successul in leveraging on certain past studies as a guide or variable selection as well as
methodology. Some o these studies are briely discussed as ollows.

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2.1. Defining sustainability and sustainable development

In this day and age, the concepts “sustainability” and “sustainable development” have become
buzzwords. However, it is a challenge to universally deine sustainability, sustainable development
and other related terms. This section discusses the deinition o these phrases rom previously
published literature, gives a brie summary o some components o the deinition, and explains the
meaning o the terms in this research.

From 1970s to the 1990s, sustainability was primarily linked to environmental concerns.
Remarkably, a global action programme or sustainable development was established at 1992
UN Conerence on Environment and Development (UNCED). One o the vital outputs was Agenda
21 which oered guidance and practices on sustainability with the ocus on environmental aspects
(Drexhage & Murphy, 2010).

Furthermore, today’s modern business world greatly contributes to the debate on sustainability
concerns. From entrepreneurial perspective, sustainability talks about a corporation’s willing and
capacity to last in time in terms o inancial perormance and resource management. According to
Doane and MacGillivray (2001), business sustainability is the business o staying in business.

These three pillars cover many areas o development, rom urban to agriculture development,
transportation, inrastructure, energy consumption, water access and electricity availability. They
are (1) Economic sustainability, (2) Environmental sustainability and (3) Social sustainability. It is o
great importance or strategic leaders and oicials to be constantly aware o the interactions,
complementarities and trade-os among the pillars. Only then will they be able to ensure respon-
sible human behaviors and actions at individual, regional, national, international levels.

The origin o the “sustainable development” concept dates back to more than 50 years ago. For the
irst time in 1969, the term appeared in an oicial document which was signed by 33 Arican
countries, under the auspices o the International Union or Conservation o Nature (IUCN) (Uribe
et al., 2018). Sustainable development was described as the “economic development that may have
beneits or current and uture generations without harming the planet’s resources or biological
organisms” in the law that made up the National Environmental Policy Act (NEPA) (Green, 2017).

Up to here, one might wonder, how does sustainable development dier rom sustainability?
There is no ine line between one thing and the other, o course. Yet sustainability is oten
considered a long-term goal or vision, or example, a sustainable enterprise or a sustainable
world, while sustainable development consists o several approaches, processes and pathways
to achieve that target, or instance, crop rotation, sustainable agriculture and orestry, well-
structured governance, technology advances, usage o recycled materials or renewable resources,
construction o a new community in a previously undeveloped area without destroying the
ecosystem or harming the environment, etc. (UNESCO, 2020).

Financial perormance is understood as the degree to which inancial targets have been accom-
plished. Measuring inancial perormance has become a central issue in both academia and
business world, as enterprises are challenged to produce eective outcomes. Most corporate
strategy analysis applies either accounting- or market-based measures to operationalize irm
inancial perormance: (1) an accounting indicator is the company’s net proit, and (2) the market
measure is market value o the irm at the end o the iscal year (Belkaoui & Picur, 1993).

2.2. The relationship between sustainability and financial performance

Though deinitions are a good tool to understand the notions, several attempts have been made to
go beyond such simple deinitions and determine a series o principles or interconnections.

On the negative impact between sustainability and inancial perormance, as argued by

Friedman (1970), there exists exactly one social responsibility o business: to manage its resources

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and involve in activities aimed at enhancing proits. Companies participating in sustainability

practices are incurring more expenses, thus aggravating these irms’ ability to demonstrate
positive inancial results. On that account, it is supposed that i leaders make any investment
which is not advantageous to sta, shareholders or clients, they are abusing the company’s
resources. Preston and O’Bannon’s (Preston & O’Bannon, 1997) managerial opportunism hypoth-
esis suggest social responsibility in companies has an adverse eect on inancial perormance. To
speciy, i inancial results show positive trends, managers reduce social expenditure to enrich their
personal gains. In contrast, they may seek to compensate or dissatisactory inancial results by
taking part in ostentatious social programs.

Jensen (2002) argued that business managers who seek sustainability solutions would interere
with the goal o irm value maximization. Empirically investigating 50 largest US and Japanese
companies, Ho and Taylor (2007) recognized that TBL (triple bottom line) reporting decreased with
irm proitability, measured by ROA. López et al. (2007) analyzed a sample o 110 companies, using
DJSI (Dow Jones Sustainability Index) and DJGI (Dow Jones Global Index). They concluded that
corporate social responsibility (CSR) and irm perormance, calculated as Proit beore tax (PBT)
growth, were negatively correlated in the short term. The link between perormance indicators and
DJSI is also ound to be negative.

On the positive impact between sustainability and inancial perormance, Montabon et al. (2007)
analyzed the relationship between sustainability management practices and such business inancial
measures as return on investment (ROI) and sales growth. The study demonstrates that a wide range o
environmental management practices (EMPs) is positively associated with multiple frm perormance
measures. The inding is supported by the slack resource theory and good management theory
(Waddock & Graves, 1997). Applying questionnaire-based survey research, Fauzi and Idris (2009)
studied items representing variables like corporate inancial perormance, business strategy, organiza-
tional structure, control system, etc., thereby airming a positive relationship between corporate
inancial perormance and corporate social perormance. In their analysis, López et al. (2007) showed
a connection between Dow Jones Sustainability Index (DJSI) and corporate social responsibility policies.

In 2010, Kapoor and Sandhu took Indian companies or their research and conirmed a positive
impact o sustainability perormance and return on sales (ROS), return on asset (ROA), and return
on equity (ROE), but insigniicant impact on growth.

Amouzesh et al. (2011) examined the relation between sustainable growth rate and irm
perormance or a sample o 54 irms listed in the Iran inancial market in a 4–year period rom
2006 to 2009. The study reveals that the deviation o actual growth rate rom sustainable growth
rate is having signiicant association with ROA and P/B ratios.

Conducting on a global scale, a research by Ameer and Othman (2012) examined 100 sustain-
able global companies in 2008. It ound that companies which put more emphasis on sustainable
practices achieve higher inancial perormance represented by ROA, proit beore tax (PBT), and
cash low rom operating activities than those without such commitments.

One year later, Strand (2013) demonstrated that a corporation with a management team
putting more emphasis on corporate social responsibility is three times more likely to be engaged
in Dow Jones Sustainability Index (DJSI). Pan et al. (2014) analyzed 228 mineral irms in China and
concluded that sustainability had a positive impact on irm’s proits, measured by ROA, ROE and
Earnings per share (EPS).

In 2017, Rahim investigated a case study in Malaysia with the data consisting o 226 companies
rom all sectors (except or a inancial sector) o Bursa Malaysia rom 2005 to 2015. The author
ound out a signiicant relationship between debt ratio, equity ratio, total asset turnover and size o
the irm with sustainable growth rate.

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Finally, regarding the neutral link between sustainability and irm inancial perormance,
Aupperle et al. (1985) described a surprising result. In an article published in The Academy o
Management Journal, they observed no statistically signiicant interactions between sustainable
development and inancial perormance. Accordingly, having a corporate social responsibility
committee does not ensure that a irm is more proitable than others. In their research,
Alexander and Buchholz (1978) deepened the issue by considering the perormance o a group
o market shares. They did not ind any signiicant relationship between CSR and either o these
two variables, indeed.

Inoue and Lee (2011) conducted a study about companies operated in our tourism-related indus-
tries (hotel, restaurant, airline and casino), and CSR were divided into ive dierent dimensions. From
that, the authors saw various impacts o each sustainability dimension on each industry: not all ive
dimensions had positive eects on both short- and long-term proitability o the companies, assessed
by ROA and Tobin’s Q. Focusing on the energy sector and banking sector, Nunes et al. (2012) indicated
that there were no dierences between sustainable companies and the others when they were
evaluated by the accounting variables such as ROA, ROE, asset turnover, and net margin.

Hussain et al. (2018) analyzed the sustainability reports o the 100 best-perorming US irms,
using sustainable disclosure indexes which are environmental, social and governance (ESG para-
meters). Their indings reveal that no ESG parameter is signiicantly related to inancial peror-
mance, estimated using both the accounting perormance (ROA and ROE) and the market-based
perormance (Tobin’s Q). Otentimes, sustainable activities are is perceived as a waste o organiza-
tional resources that could be better invested in other projects, ventures, or distributed to share-
holders (McWilliams et al., 2006).

2.3. Hypothesis development

Based on the previous literature it can be observed that studies have concentrated on the eect o
sustainability and inancial perormance. However, the previous results representing inconsistency.
Some scholars believed that the sustainability aect positively to inancial perormance (Ameer and
Othman, 2012; Amouzesh et al., 2011; Kapoor & Sandhu, 2010), meanwhile some others had reverse
relation (or instance, Hussain et al., 2018; Inoue & Lee, 2011). And surprisingly, some authors reported
the no link between sustainability and irms’ inancial perormance (Aupperle et al., 1985). Thereore,
to conirm about this relationship, the current study proposes the ollowing hypothesis:

H1: Sustainability is positively related to corporate financial performance.

It is deined that the sustainability has various dimension, including DJSI (Dow Jones
Sustainability Index), GC (Global Compact), GRI (Global Reporting Initiative), CSRD (Corporate Social
Responsibility Disclosure), RANK (Corporate Social Responsibility Ranking) and RATE (Sustainable
Growth Rate) (Fernandez, 2016). Thus, rom Hypothesis 1 we derive the ollowing sub-hypothesis:

H1.1 (DJSI). Companies included in the DJSI achieve better financial performance.

H1.2 (GRI)). Companies obtaining a higher rating in the GRI index achieve better financial
performance.

H1.3 (CGRD). The greater disclosure of Corporate Social Responsibility the better the financial
performance.

H1.4 (GC). Companies that sign the Global Compact achieve better financial performance.

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3. Research methodology

3.1. Research design

The main aim o the work is to deine whether it is possible to boost inancial results by integrating
environmental strategies into the business operations.

It is possible to generalize the methodology o research through three phases. First o all, data is
collected or research purpose. The study selects a research sample o 116 listed companies in
Sweden in the year 2019. Then, a combination o analytical methods is applied to conduct analysis.
These are methods o descriptive statistics, correlation analysis, hypothesis testing and multiple
regression analysis. A multiple regression model will be built up that can shed light on the relations
across social, economic and environmental indicators. Finally, conclusions are drawn and the results
would thereore include relative data comparison and conclusive support or uture research.

The ollowing generic model is used to test the hypotheses:

Financial performance = f(Dow Jones Sustainability Index, Global Compact, Global Reporting
Initiative, Corporate Social Responsibility Disclosure, Corporate Social Responsibility Rank,
Sustainable Growth Rate, Asset, Sales, Number of Employees).

3.2. Financial performance measurement

Generally, researchers oten make use o accounting and market-based measures which provide
an appropriate and more comprehensive evaluation o irms.

Many have ound that accounting-based metrics, such as ROA, ROE, and proit margin, are
applied or the irm’s short-term perormance while the irm’s market-based result is calculated
using Tobin’s Q and stock returns as indicators o potential long-term growth.

Financial measurements used in this research is presented in Table 1.

3.3. Sustainability measurement

From the concept o sustainability to the ormation o sustainability indexes, there are several
approaches to assess how irms, communities and countries are going on with the principles o
sustainable development. It is essential to be eco-riendlier, in every area o our lives, but how are we
supposed to assess the company’s environmental sustainability? Though there have been many pre-
vious works on sustainability, there is still little agreement about how to measure sustainability within
companies. As maintained by Montiel and Ceballos (Montiel & Delgado-Ceballos, 2014), there are two

Table 1. Financial variables (financial performance used as dependent variables)

Financial variables Description
Market-based Tobin’s Q Tobin’s Q = Market Capitalization/
Total Assets
EY Earnings Yield = Earnings per Share
for the most recent 12-month
period/Current Market Price per
Share
Accounting-based ROA Return on Assets = Net Income/
Total Assets
ROE Return on Equity = Net Income/
Shareholder’s Equity
ROCE Return on Capital
Employed = Profit/Loss before Tax/
Capital Employed

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key data collection approaches to value sustainability results. The irst method is to rely on secondary
sources or some sustainability indexes to measure corporate sustainability. Among the most widely
used indicators are, say, the Dow Jones Sustainability Index (DJSI), the Global Sustainability Leaders
Index (GSLI), the FTSE4Good Developed Index, the Supplier CSR Rating, the Ethibel Sustainability Index
(ESI), Global Reporting Initiative Index (GRI), etc. (Diez-Cañamero et al., 2020).

Since many Swedish companies are included in the sustainability rating databases and thanks to
available accessibility and appropriateness, it is apt to apply secondary databases. Sustainability
measurements used in this research is presented in Table 2.

3.4. Control variables

When analyzing the relation between corporate sustainability perormance and inancial peror-
mance, it is necessary to take into consideration the actors that can provide insight and aect the
result o a company. Failure to do so could lead to bias in the outcome (Saunders et al., 2012), or
endogeneity—a serious issue or scholars (Darnell, 2017).

Some o the most common control variables employed by authors are industry/sector, risk,
leverage level and irm size (which is an eort to control or the possibility that CSR is a luxury
good). Firm size can be measured in a range o ways, including natural log o sales and natural log
o total assets.

3.5. Sample and data collection

For the empirical analysis, the work ormulates a multivariate regression model. To conduct the
statistical analysis, the thesis uses the econometric sotware Eviews 11, which is widely used in the
empirical research world, to run the OLS regression.

The population consists o Swedish companies listed on the OMX in the year 2019. The inormation
was obtained rom the Osiris Bureau van Dijk, accessed by my UWE account. The initial number is 801
companies; however, it is understandable that not all inancial and non-inancial data o these irms
are available. For example, there is missing data when no value is stored or such variables as return
on asset, return on equity, return on capital employed, number o employees, sustainable growth
rate, etc. The population is reduced to 359 irms. In light o the content analysis o CSR disclosure,
Dow Jones sustainability index or Global Compact engagement, because the data had to be collected
manually, the paper has excluded the companies that have no relevant inormation. All data were
secondary data. The inal sample consists o data rom 116 companies.

3.6. Research model

Following the literature review, the thesis will derive sub-hypotheses and ocus on testing statis-
tically the relationship between sustainability and inancial perormance.

The equation is as ollows:

FP = c + β1*DJSI + β2*GC + β3*GRI +β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + β8*LNEMP + ε

Financial perormance (FP) is the dependent variable, which is represented by Tobin’s Q, ROA
(Return on Assets), ROE (Return on equity), ROCE (Return on Capital Employed) and EY (Earnings Yield).

Independent variables like DJSI (Dow Jones Sustainability Index), GC (Global Compact), GRI
(Global Reporting Initiative), CSRD (Corporate Social Responsibility Disclosure), RANK (Corporate
Social Responsibility Ranking) and RATE (Sustainable Growth Rate) deine dierent dimensions o
sustainability. LNASSET is used as control variables which consider company size by taking the
natural logarithm o the assets.

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Table 2. Sustainability variables (sustainability performance used as independent variables)

Sustainability variables Description Value
DJSI (Dow Jones Sustainability It is a measurement of It takes value 1 if the company
Index) sustainability performance of belongs to the DJSI, and 0
companies trading publicly, acted otherwise. The review results about
under a strategic cooperation companies belonging to the DJSI
between S&P Dow Jones Indices can be seen in the 2019 SAM
and RobecoSAM. The universality Corporate Sustainability
and credibility as a sustainability Assessment which is available on
index allow it to be a strong the RobecoSAM website.
indicator for measuring CSR.
GC (Global Compact) It reveals whether an organization It takes value 1 if the company has
has signed the Global Compact. As signed the The United Nations
it was emphasized in a forum of Global Compact, and 0 otherwise.
CSR experts of the Ministry of Labor The data proceed from The United
(2005), along with others like GRI, Nations Global Compact network.
this indicator has been chosen as
one of the CSR measures.
GRI (Global Reporting Initiative) It publishes the level of Based on the GRI index valuation,
involvement that a company has in the following numerical values are
terms of sustainability and suggested: A+: 1; A: 0.9; B+: 0.8; B:
promotes the drafting of 0.7; C+: 0.6; C: 0.5; and, if no GRI
sustainability reports in adherence index: 0. The information is
to global standards (Alejandro and gathered from the GRI official
Santos, 2016). In this research, database.
variable GRI is used because of its
wide recognition in Europe and its
capability of classifying companies.
CSRD (Corporate Social It’s a mechanism by which It takes value 1 if the company
Responsibility Disclosure) companies provide information to chooses to disclose CSR in
stakeholders about their corporate a sustainability report, and 0
activities related to environmental, otherwise. The information is
ecological and other social issues collected from the company’s
(Abdulwahab et al., 2018). official website.
Mathews (1993) described CSRD as
a voluntary disclosure of
qualitative and quantitative
information released by firms to
educate or affect a variety of
stakeholders.
RANK (Corporate Social It provides perspective by rank CSRHub takes information from its
Responsibility Ranking) ordering a company’s ratings data sources and transforms it into
against all other ratings. CSR a 0 to 100 scale.
Ranking is primarily about
perception and the findings of
surveys are simply an indication of
which companies’ customers feel
are socially responsible (Strauss,
2016).
RATE (Sustainable Growth Rate) It is the maximum growth rate The data is provided by Osiris
that a firm can sustain without Bureau van Dijk Database.
having to rely on financial leverage
or borrowings (Todd et al., 2014). It
is critical for a firm to achieve long-
term success by being more
environmentally and socially
aware, reliable and accountable for
the impact that they may have on
the general community (Miller,
2018).

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Finally, ε is the error term (disturbance term) which represents all other actors (unpredictable
elements or omitted variables) that are not included in the model.

We have the ollowing sub-models:

(1)TobinQ = c + β1*DJSI + β2GC + β3*GRI + β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + ε

(2)EY = c + β1*DJSI + β2GC + β3*GRI + β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + ε

(3)ROA = c + β1*DJSI + β2GC + β3*GRI + β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + ε

(4)ROE = c + β1*DJSI + β2GC + β3*GRI + β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + ε

(5)c + β1*DJSI + β2GC + β3*GRI + β4*CSRD + β5*RANK + β6*RATE + β7*LNASSET + ε

4. Empirical results and analysis

4.1. Descriptive statistics

Table 3 shows the results o the company’s perormance level in general statistical measurements
such as mean, standard deviation, and variance respectively.

In terms o sustainability perormance, corporate responsibility rankings o irms range rom

a low o zero to a high o 99 with a mean score o 77.5. The sustainable growth rates recorded by
Osiris, as the second measure o CSR, range rom −274 to 210 with a slightly positive mean o 5.4.
Finally, the rating in GRI standard, whose score ranges rom 0 to 1, presents a mean o 0.30.

The mean value o dummy variables ranges rom 0 to 1 in the summary statistics. Mean o CSRD
shows that about 85% irms annually prepare sustainability reports or sustainability disclosures
while the other 15% do not, which implies that the majority o Swedish irms use sustainable
reports to review their sustainability activities.

The mean value o DJSI reveals that only about 14% Swedish companies are related to the
index. Approximate a hal (51%) o the sample irms have signed the Global Compact (GC) since it
was launched in 2000.

Finally, as or inancial indicators, the maximum and minimum values o ROA are 97.61 and
−34.83; or ROE, they are 210.53 and −73.62; and, or ROCE these are 57.36 and −59.53. The
respective mean values are 6.18, 13.99, and 10.34.

When it comes to market-based inancial measurements, the average Swedish irm has an
earnings yield o 12.54%, which is relatively low since the range o the igure is rom 6.3% to
265%. Tobin’s Q value demonstrates a minimum o 0.03 and a maximum o 11.85, while the mean
o which is only 1.32.

4.2. Autocorrelation test

The Durbin–Watson (DW) test has been conducted to check the autocorrelation within the pro-
posed data. Theoretically, DW statistic lies between 0 and 4, with each circumstance giving
dierent meanings. Generally, an acceptable range is 1.50–2.50 (Durbin-Watson,).

From the results in Table 4, the dependent variables have DW values ranging rom 1.978 to
2.251. This reveals that there is almost no autocorrelation within the variables o the study.

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Pham et al., Cogent Business & Management (2021), 8: 1912526
Table 3. Descriptive statistics for the sample
CSRD DJSI EY GC GRI LnAsset RANK RATE ROA ROCE ROE TobinQ
Mean 0.85 0.14 12.54 0.52 0.31 13.97 68.37 5.38 6.18 10.35 14.00 1.33
Median 1.00 0.00 6.29 1.00 0.00 13.79 77.50 8.45 5.40 10.31 13.90 0.91
Maximum 1.00 1.00 264.99 1.00 1.00 17.85 99.00 210.53 97.61 57.36 210.53 11.88
Minimum 0.00 0.00 1.17 0.00 0.00 10.40 1.00 −274.3 −34.8 −59.5 −73.62 0.03
Std. Dev. 0.36 0.35 31.25 0.50 0.37 1.59 27.09 36.20 12.12 12.40 25.32 1.61
Skewness −2.00 2.10 6.71 −0.07 0.57 0.04 −0.89 −2.64 3.38 −1.04 3.43 4.64
N 116 116 116 116 116 116 116 116 116 116 116 116
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Table 4. Test for autocorrelation

Dependent variables Durbin-Watson value
Tobin’s Q 2.128
EY 1.979
ROA 2.251
ROE 2.152
ROCE 1.978

4.3. Heteroskedasticity test

In the irst our models, p-value < α = 5%, so we should reject the null hypothesis, meaning then we
have heteroskedasticity. In the last model, p-value > α = 5%, thereore heteroskedasticity is not
present and we do accept the null hypothesis.

Since there is heteroskedasticity presence in the regressions that are carried out, we can get
better estimators o the coeicients i we can correct or the heteroskedasticity using Weighted
Least Squares. Ater correcting heteroskedasticity or the irst model, all models do not present
problems o heteroscedasticity.

4.4. Correlation between variables

Table 5 displays the correlation matrix or all non-dummy variables in the regression model or the
sample Swedish irms in this research.

Tobin’s Q shows a weak positive relationship with sustainable growth rate at 10%. Earnings yield
and sustainable growth rate show a signiicant positive correlation at 33%. This support the
hypothesis that there is a positive relationship between corporate sustainability activities and
inancial perormance.

Moreover, ROA, ROE, and sustainable growth rate have a positive correlation at 57% and 63%,
respectively. This could urther support the idea that irms with higher sustainable growth rate
achieve higher returns on asset and equity. Dow Jones Sustainability Index (DJSI) is also
a sustainable sign o a better inancial result. Besides, Global Compact commitment and sustain-
able growth rate matter a lot when it comes to Return on Capital Employed (ROCE), with the
correlations being 19% and 26%, respectively.

4.5. Regression results

Ater correcting heteroskedasticity or the irst model, the output is presented in the ollowing
Table 6.

P-value o the regression coeicients o the independent variables CSRD is less than 0.05, so this
variable is meaningul in explaining the dependent variable at 95% conidence level.

The regression coeicient o CSRD is less than 0; thus, it has the opposite directional impact on
the dependent variable.

TobinQ ¼ 3:2329 þ 0:2276DJSI  0:3246GC  0:0019GRI  1:1817CSRD  0:0035RANK

þ 0:0041RATE  0:0391LNASSET þ ε

Briely, CSRD aects the irm’s inancial result while GC, GRI, RANK and RATE do not aect the
irm’s Tobin’s Q value.

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 Table 5. Correlation between social responsibility and financial performance
TobinQ EY ROA ROE ROCE DJSI GC GRI CSRD RANK RATE LnAsset
https://doi.org/10.1080/23311975.2021.1912526

TobinQ 1 −0.16 0.34 0.23 0.42 −0.02 −0.15 −0.13 −0.30 −0.16 0.10 −0.15
EY −0.16 1 0.39 0.41 −0.12 0.14 0.05 0.06 0.09 0.18 0.33 0.12
ROA 0.34 0.39 1 0.96 0.52 0.26 0.03 0.10 −0.07 0.05 0.57 0.17
ROE 0.23 0.41 0.96 1 0.52 0.25 0.08 0.11 −0.09 0.08 0.63 0.19
Pham et al., Cogent Business & Management (2021), 8: 1912526

ROCE 0.42 −0.12 0.52 0.52 1 0.05 0.20 0.00 −0.21 −0.06 0.27 0.20
DJSI −0.02 0.14 0.26 0.25 0.05 1 0.14 0.22 0.10 0.27 −0.02 0.40
GC −0.15 0.05 0.03 0.08 0.20 0.14 1 0.30 0.09 0.41 0.10 0.39
GRI −0.13 0.06 0.10 0.11 0.00 0.218 0.30 1 0.28 0.53 0.12 0.42
CSRD −0.30 0.09 −0.07 −0.09 −0.21 0.10 0.09 0.28 1 0.24 −0.09 0.27
RANK −0.16 0.18 0.05 0.08 −0.06 0.27 0.41 0.53 0.24 1 0.05 0.41
RATE 0.10 0.33 0.57 0.63 0.27 −0.02 0.10 0.12 −0.09 0.05 1 0.09
LnAsset −0.15 0.12 0.17 0.19 0.20 0.40 0.39 0.42 0.27 0.41 0.09 1

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 Table 6. Regression coefficients after correcting heteroskedasticity for models 1, 2, 3, 4, and 5
Variable Coefficient Std. Error t-Statistic Prob.
Model 1: Tobin’s Q is dependent variable
https://doi.org/10.1080/23311975.2021.1912526

C 3.2329 1.4956 2.1617 0.0328

DJSI 0.2276 0.4635 0.4910 0.6244
GC −0.3246 0.3335 −0.9732 0.3326
Pham et al., Cogent Business & Management (2021), 8: 1912526

GRI −0.0019 0.4885 −0.0040 0.9968

CSRD −1.1817 0.4398 −2.6868 0.0084
RANK −0.0035 0.0068 −0.5104 0.6108
RATE 0.0041 0.0041 0.9936 0.3226
LNASSET −0.0391 0.1159 −0.3369 0.7368
Model 2: EY is dependent variable
C −12.3073 28.1530 −0.4372 0.6629
DJSI 10.5152 8.7258 1.2051 0.2308
GC −3.7310 6.2783 −0.5943 0.5536
GRI −10.1397 9.1962 −1.1026 0.2727
CSRD 8.4926 8.2792 1.0258 0.3073
RANK 0.2190 0.1288 1.7007 0.0919
RATE 0.3072 0.0774 3.9708 0.0001
LNASSET 0.3258 2.1819 0.1493 0.8816
Model 3: ROA is dependent variable
C −0.015692 9.242842 −0.001698 0.9986
DJSI 9.370384 2.864748 3.270927 0.0014
GC −1.923992 2.061215 −0.933426 0.3527
GRI 0.102353 3.019185 0.033901 0.9730
CSRD −1.858167 2.718108 −0.683625 0.4957
RANK −0.012896 0.042278 −0.305028 0.7609
RATE 0.190973 0.025403 7.517756 0.0000

(Continued)

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 Table 6. (Continued)
Variable Coefficient Std. Error t-Statistic Prob.
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LNASSET 0.523403 0.716343 0.73066 0.4666

Model 4: ROE is dependent variable
C −3.851438 18.03257 −0.213582 0.8313
Pham et al., Cogent Business & Management (2021), 8: 1912526

DJSI 18.3285 5.589056 3.279354 0.0014

GC −1.848222 4.021383 −0.459599 0.6467
GRI −1.505745 5.890358 −0.255629 0.7987
CSRD −5.255763 5.302965 −0.991099 0.3239
RANK −0.012108 0.082484 −0.14679 0.8836
RATE 0.442189 0.049561 8.922208 0.0000
LNASSET 1.408355 1.397568 1.007718 0.3158
Model 5: ROCE is dependent variable
C −7.788427 10.95121 −0.711194 0.4785
DJSI 0.327853 3.394243 0.096591 0.9232
GC 4.312566 2.442192 1.765859 0.0802
GRI −1.016376 3.577224 −0.284124 0.7769
CSRD −7.854182 3.2205 −2.438809 0.0164
RANK −0.0839 0.050093 −1.674896 0.0968
RATE 0.074495 0.030098 2.475055 0.0149
LNASSET 2.019695 0.848746 2.379624 0.0191

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For the second model, it is clear that p-values o all variables except RATE are higher than 0.01,
meaning they are insigniicant in illuminating the irm’s earnings yield. The regression coeicient
o RATE is positive, which reveals directional eects on the dependent variable which is EY.

We arrive at the ollowing regression equation:

EY ¼ 12:3073 þ 10:5152DJSI  3:7310GC  10:1397GRI þ 8:4926CSRD þ 0:2190RANK

þ 0:3072RATE þ 0:3258LNASSET þ ε

Regarding ROA, when p-value o the regression coeicients o the independent variables DJSI and
RATE are smaller than 0.01, the result is trumpeted as signiicant at 99% conidence level.

The coeicients o variables GC, CSRD and RANK are all negative, hence it means that there is an
inverse relationship between the two parameters tested. A positive coeicient o RATE means that
or every unit increase in sustainable growth rate, we expect a 19% increase in ROA, holding all
other variables constant.

We only accept the hypothesis that companies having a higher sustainable growth rate achieve
a higher return on assets. We arrive at the ollowing regression equation:

ROA ¼ 0:015692 þ 9:370384GC  1:923992GC þ 0:102353GRI  1:858167CSRD  0:012896RANK

þ 0:190973RATE þ 0:523403LNASSET þ ε

Looking at the regression result o model 4, one can see that the p-value o the regression
coeicients o such variables as DJSI and RATE are less than 0.01, so these variables are proved
to be statistically signiicant or the model at the corresponding conidence level o 99%.

The coeicients o DJSI, RATE and LNASSET are positive, meaning they have a direct connection
with the outcome variable. On the contrary, other variables are negatively related to ROE value.
The interpretation is that or every 1-unit increase in either rating in DJSI or sustainable growth
rate, ROE will increase by either 18.32 or 0.44 times, respectively, holding constant all o the other
predictors in the model.

The regression equation is:

ROE ¼ 3:851438 þ 18:3285DJSI  1:848222GC  1:505745GRI  5:255763CSRD  0:012108RANK

þ 0:442189RATE þ 1:408355LNASSET þ ε

Looking at the p-values o CSRD, RATE and LNASSET, we can assume that these indicators are signiicant
at 95% level o conidence.

The coeicients o all variables are positive, describing a direct relationship between the two
measures. To illustrate, a positive coeicient o RATE means that or every unit increase in
sustainable growth rate, we expect a nearly 1.5% increase in ROCE, with all other variables
being constant.

We can conclude the ollowing regression equation:

ROCE ¼ 0:4785 þ 0:9232DJSI þ 0:0802GC þ 0:7769GRI þ 0:0164CSRD þ 0:0968RANK þ 0:0149RATE

þ 0:0191LNASSET þ ε

The main results are:

● higher sustainable growth rate leads to a greater value or EY

● greater sustainable growth rates and engagements in DJSI lead to greater ROA and ROE

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● greater values in sustainable growth rate and corporate social responsibility disclosure lead to
a greater ROCE

5. Conclusions and recommendations

The goal o this analysis was to examine the connection between corporate sustainability success
and inancial results among Swedish companies. In addition, the study adds to the current corporate
sustainability literature by considering other inancial result measures, with earnings yield (EY) being
a market-based indicator and return on capital employed (ROCE) being an accounting-based one.
Hence, managerial decisions should be constantly ocused on sustainability concerns.

Accordingly, a positive association between organizational sustainability success and inancial

results has been expected. The exploratory results conirm that the adoption o some speciic
sustainability practices is signiicantly and positively associated with EY, ROA, ROE and ROCE.
Nevertheless, urther tests have indicated that the relationship is more complex than initially
thought, i.e., there are positive relationships or such indicators as DJSI and RATE, and
a negative relation or CSRD.

It is evident that investment in sustainable growth and the subsequent inclusion o Swedish
enterprises, beyond promoting access to inancial resources and enhancing its reputation, oer
economic merits that aect the irm value. Indeed, a company’s inclusion in the DJSI, which is
a proxy or environmental and social eiciency, would result in higher inancial returns. The CSRD is
a type o voluntary disclosure, which is used by corporations to promote public awareness, boost their
reputation, and shield themselves rom society blaming. A sustainability report may include oers
extensive and in-depth statistics on the sustainable development o the business in a well-structured
and objective way, allowing investors to gain new insights into the results o the company.

With CSRD, a company can legitimize its behavior and aect expectations o various stake-
holders (Hania & Hudaib, 2006). Logically, having a good reputation greatly contributes to
enhancing Swedish irms’ earnings yield.

Broadly speaking, the research draws attention to the added values or Swedish managers to
conorm to the sustainability practices. It is critical or the Board o Directors to recognize that
social and environment initiatives are an important part o the policy.

As regards to sustainable growth rate, microeconomic policies should aim to enhance sustainable
growth rate, as the decision in managing the inancial and operating activities towards the growth o
the company is related to its perormance. Some irms, or example, implement environmental, or
water, or waste management schemes to leverage cost eiciencies and thereby boost their bottom
line. Since such programs would usually be seen as embracing sustainable practices to help achieving
economic success, there arises a question whether a company would expect to gain a real compe-
titive advantage merely by adopting them. Indeed, by applying common practices, a irm can beneit
by being recognized as legitimate, or in other words, being the same as its peers.

Some sustainability practices, namely, sustainability report preparation, are simply becoming
“best practice” o the industry and are thus required. However, it is obvious that certain businesses
are building a real competitive edge by embracing environmental policies that their rivals cannot
easily ollow. The results suggest that sustainability can be both a necessity and a dierentiator.

In order to improve business sustainability, the most requent opinion in this matter is that the
Swedish government should bring in a target to keep track o the sustainable guidelines and oster
a more qualitative reporting by national companies. Stronger measures are bound to be intro-
duced, and legislation with compulsory consequence analysis ought to be investigated and pro-
posed, so that companies operating in distinct areas and sectors can ollow.

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Despite these promising results, there are also certain limitations in need o relection, including
limited geographical and temporal scope; predominantly with a geographical ocus at Sweden
level; the complicated measurement o corporate sustainability; and possible risk o biased results
due to subjective interpretations o the outcomes and not only o the methodology.

Future research should aim to extend this research to both European and international contexts,
given the availability o the data required or the empirical analysis. Moreover, it would be o great
use to analyze whether the results obtained are conirmed or not or broader time horizons.
Certainly, both accounting-based and market-based measures o inancial perormance should
be used as they are more appropriate or long-term inancial perormance analysis.

Funding University o Florida. Available rom: https://udci

The authors received no direct funding for this research. mages.ulib.ul.edu/AA/00/06/18/22/00001/Darnell-
Jamey_DBA.pd
Author details Desai, M. (1991). Human development: Concepts and
Duc Cuong Pham1 measurement. European Economic Review, 35(2–3),
E-mail: [email protected] 350–357. https://doi.org/10.1016/0014-2921(91)
Thi Ngoc Anh Do2 90136-7
Thanh Nga Doan1 Diez-Cañamero, B., Bishara, T., Otegi-Olaso, J.,
Thi Xuan Hong Nguyen3 Minguez, R., & Fernández, J. (2020). Measurement o
Thi Kim Yen Pham4 corporate social responsibility: A review o corporate
1
School of Accounting and Auditing, the National sustainability indexes, rankings and ratings.
Economics University, Vietnam. Sustainability, 12(2153), 1–36. https://doi.org/10.
2
Banking Academy of Vietnam. 3390/su12052153
3
Accounting Faculty, Hanoi University of Industry, Hanoi, Doane, D., & MacGillivray, A. (2001) Economic sustain-
Vietnam. ability the business of staying in business [online].
4
Economics Faculty, Vinh University, Vinh, Vietnam. New Economics Foundation, London. Available rom:
https://pds.semanticscholar.org/2a4e/da2c8660dc0
Citation information d02a514512d96bd1bc1d4808a.pd
Cite this article as: The impact of sustainability practices Drexhage, J., & Murphy, D. (2010). Sustainable develop-
on financial performance: empirical evidence from ment: From Brundtland to Rio 2012. background
Sweden, Duc Cuong Pham, Thi Ngoc Anh Do, Thanh Nga paper prepared for consideration by the high level
Doan, Thi Xuan Hong Nguyen & Thi Kim Yen Pham, Cogent panel on global sustainability at its first meeting
Business & Management (2021), 8: 1912526. 19 September 2010. United Nations.
Fauzi, H., & Idris, K. M. (2009). The relationship o CSR and
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