Bidirectional approach on corporate sustainable: Financial performance nexus for energy industry

Abstract

This study aims to explore the bidirectional relationship between corporate sustainable and financial performance based on the short-run causality. The purpose is to identify possible approaches the companies may address in the endeavour of reframing their business model. The research examines the companies in energy industry worldwide, included in Thomson Reuters Eikon database, standing for possible causal associations between sustainable and financial performance variables, further controlled by variables reflecting specific characteristics of companies. Corporate sustainable performance, measured by environmental, social and governance (ESG) factors is related with the shareholders-oriented performance, measured by accounting and market financial ratios. The research hypothesis is verified by performing bidirectional Granger causality tests on data previously validated by stationarity tests, complemented then by unidirectional associations based on multiple regression analysis. The results support a feedback bidirectional relationship in the case of return on equity, and a financial growth hypothesis for the market to book value when associated with the aggregated corporate sustainable performance. Furthermore, the Granger causality findings are validated by the OLS regression tests. The unidirectional causality verifies for the sustainable growth hypothesis supporting the significant impact of the sustainable performance measures (both aggregated and controversies-related) on the majority of the financial performance measures. Findings show that the change in the aggregated sustainable performance may lead to a change in the market measure of financial performance that may generate incentives for the company to reinvest in sustainability-related actions. The study provides a value-added to current knowledge by including into the research a multidimensional score reflecting the sustainabilityoriented policies of the companies around the world, activating in a sensitive sustainability-oriented industry. This paper proposes future research for better understanding the specific characteristics of energy industry in terms of sustainabilityrelated policies, by including into research the controversies generated by the scandals the companies were involved in, as a corporate legitimacy-related measure.