Corporate Sustainability Performance Evaluation and Firm Financial Performance: Evidence from Pakistan

Abstract

The study purports to search the corporate sustainability practices of the companies in Pakistan. This study is novel research in the context as it tries to capture corporate sustainability practices in a market where these practices involve a high divergence among the companies amidst a voluntary disclosure requirement. Total sustainability efforts by the companies in Pakistan have been assembled over an index based on Global Reporting Initiative (GRI) reporting guidelines and some context-specific indicators. Corporate sustainability has been calculated by applying the quality of disclosure (CSQI) along with the level of disclosure (CSLI). The average CSLI disclosure is 47% and CSQI disclosure is 27%. The quality of disclosure is lower as the companies do not disclose too much data in quantitative or statistical form. The disclosure is also described as inconsistent among the companies. The study finds a relationship between corporate sustainability scores and corporate financial performance by applying a step-by-step approach likely to lead to a generalized method of moments (GMM) estimation for controlling the endogenous nature of such a relationship. Regression results have confirmed that there exists a positive relationship between corporate sustainability and accounting and market-based financial performance. The stakeholder theory seems to have roots in the context. The study has some policy implications and will guide the regulation of sustainability at the corporate level in Pakistan.