The Impact of Adherence to Sustainable Development, as Defined by the Global Reporting Initiative (GRI-G4), on the Financial Performance Indicators of Banks: A Comparative Study of the UAE and Iraq

Abstract

Based on stakeholder theory, disclosing sustainable development information is fundamental to achieving a competitive advantage and improving a company’s financial performance. There has been a notable absence of studies examining the degree of adherence to sustainability based on the latest indicators from the Global Reporting Initiative (GRI-G4) Guidelines and its impact on financial performance, specifically within the banking sector in emerging Arab economies. Consequently, this study explores the correlation between the degree of adherence to sustainability and its dimensions (economic, social, and environmental) as defined by GRI-G4 and financial performance within a sample of banks in Arab nations (the United Arab Emirates “UAE” and Iraq) from 2019 to 2021. The research hypotheses were examined using a multiple linear regression model. The empirical findings reveal that, on average, UAE banks exhibit a sustainability adherence level of 57% according to GRI-G4, while their Iraqi counterparts demonstrate a significantly lower adherence of 17%. Notably, the degree of sustainability adherence substantially impacts the financial performance of banks in both countries. Furthermore, the results also indicated that the economic dimension of sustainability has a positive impact, while the environmental dimension has a negative impact, and in contrast, the social dimension does not significantly affect the financial performance of banks in both countries. This study provides insights for banks and policymakers to enhance their sustainability practices and elevate the level of disclosure, especially within Arab nations. This, in turn, can lead to greater compliance with sustainability standards, improved transparency, and reduced information asymmetry.