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Financial Management's Role in Encouraging Sustainable Long- Term Company

Practices and Growth

Article · March 2022

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 Financial Management's Role in Encouraging Sustainable Long-

Term Company Practices and Growth

Shama AlMarar

Supervised by:
Prof. Haitham Nobanee
\

Abstract

This discourse essentially puts forward the importance of financial management in

ensuring that business practices and development is sustainable. The long-term success of a firm

is based on how sustainable the business practices of the firm is. The study therefore looks at how

sustainability and financial management interrelate for the long-term success of a firm. The paper

also explores how Morocco is implementing sustainable financial management measures in its

economy and the advantages obtained from doing so. The research determines that financial

management is necessary for encouraging sustainability in commerce and development.

Introduction

Our financial models were created during a time when natural resources were abundant

and greenhouse gases were minimal (Daly and Farley, 2011). Such models did not take into

account ecological issues; only labor and investments required were included. Similarly, fiscal

concepts assign no significance to natural assets past their short-term net income. The potentially
catastrophic depletion of supplies is often disregarded. These approaches are to this day

extensively utilized; however, they are not any more feasible. To address ecological concerns,

society is currently transitioning to a low-carbon, better rounded economy.

Our capitalistic society has resulted in numerous firms embracing large-scale production

practices in order to compete favorably in the present cut-throat economic system. This has

resulted in very long hours on the job for laborers and even utilization of underage laborers. This

was especially common in developed nations; however, the issue has now even spread to

developing nations.

To combat such actions and to foster acceptable labor practices and accessibility to

learning and health care, societal rules have become highly prevalent. The UN has established the

2030 Agenda for Sustainable Development to lead the change for a better and more inclusive

economy, which will necessitate behavioral transformation. Governments of various nations

across the globe are pushing the transition to sustainable finance by putting into place laws and

regulations that motivate firms to utilize sustainable finance practices (Ameer and Othman, 2012).

It has also been noted that as firms try to achieve some of the Sustainable Development Goals

there is an increase in their profitability (Muhmad and Muhamad, 2020). Another study carried

out by Alshehhi et al., (2018) seems to agree with the previous findings.

The primary function of the financial sector is to distribute funds to the most profitable use.

Finance can take a leadership role in channeling resources to sustainable corporations and

initiatives, accelerating the change to decarbonization and a more rounded economy.

Contemplating the various facets of sustainability, Zyadat (2016) elucidates that despite corporate

social sustainability being intentional, it has a massive impact on profitability of a business. The

study of how finance (investment and credit) relates to economic, sociological, and ecological
issues for long-term benefits of stakeholders and the society is known as sustainable finance

(Reinhart and Rogoff, 2010).

Finance, in its apportionment function, can help make tactical judgments about

concessions on sustainability aims. Furthermore, financiers can exercise power over the

corporations they have invested in. Shareholders can drive corporations toward more corporate

sustainability in this manner. Financial management has been found to boost the effectiveness of

the operations of a given firm based on profitability (Morgan,2011). It is therefore in the interest

of finance executives to maximize profits while using minimal resources (Etukafia and Udofot,

2017). It is essential that there is in-depth interpretation of financial management and its part in

sustainable development to ensure profitability of the firm (Mynhardt, Makarenko and Platsun,

2017). This discourse discusses the part financial management plays in ensuring that business

practices are sustainable and profitable (Al Breiki and Nobanee, 2019).

Literature Review

It is critical to bear in mind the fundamental purpose of financial management in fostering

business procedures which are sustainable. Presently, most research shows that majority of

individuals agree with this. Adoption of green and efficient business practices goes a long way in

ensuring that a firm implements sustainable business techniques (Caldera, Desha and Dawes,

2019). It is because of this reason that firms listed in the stock exchange try as much as possible

to green so as to look attractive to potential investors (Mchavi, 2017). It has been argued that

financial measures which are focused on sustainability are necessary for encouragement of

enduring sustainable business customs. As a result of this, it is clear that financial management

and its overarching principles play a critical part in all facets of sustainable business practices.
Furthermore, only appropriate and properly structured fiscal management measures can guarantee

longstanding permanence of a corporation (Bosco et al., 2017).

A lot of research papers further corroborate the idea that financial management is essential

in order for a firm to be sustainable. Alkaabi and Nonabee (2019) concede that financial

management is essential in encouraging sustainability in business practices. Another research

paper by Al Breiki and Nonabee (2019) also agrees with these findings. Their work shows the

relationship between the longstanding durability of a business and its sustainability with financial

management practices. It has also been shown through research that numerous corporations

integrate sustainable business practices in their day-to-day operations so as to boost profitability

(Sroufe and Gopalkrishna-Remani, 2018). Furthermore, Keskin et al., (2020) has proven through

their study that there is a definite connection between the extent of a business in a market and its

sustainability. For example in China, there has been an increase in the social performance of

businesses which has resulted in increased profitability (Weber, 2017). The current occurrence in

Russia clearly shows that firms have been improving their sustainability so as to be more profitable

in the long-run (Orazalin et al., 2019).

Another significant nugget of evidence in regards to the article emerges, covering the

incentive of financial management to favorably effect numerous sustainability measures.

Regarding the matter, financial managers might do so in order to boost their companies'

competitiveness and drive the firms toward strong results of various types. In principle, as Al

Nuaimi and Nobanee (2019) demonstrate in their collaborative study, sustainability reporting in

firms has a significant influence on organizational economic progress. Generally, known research

indicates that financial management has an obvious massive influence on the potential to

support all sorts of sustainability.

 One of the primary causes of the observed pattern is the beneficial influence of different

sustainability strategies on the overall resilience of profitability. In summary, many firms are eager

to take part in sustainability initiatives in order to really enhance their potential to provide greater

outcomes. Ultimately, notwithstanding the assertions of many left-wing advocates and even

academics, the contemporary capitalist system provides enough initiatives to encourage some sort

of sustainability (Alkaabi and Nobanee, 2019).

The available data plainly demonstrates that no extraneous influence is vital for the

continued viability of the company. In this regard, Nizam et al. (2019) observes that financial firms

(such as banking institutions) profit considerably from different types of social sustainable

development activities. The greater the presence of sustainability practices, the superior the

performance of a firm appears to be. As a result, financial management may freely assert that it is

fully involved in sustainable development and works to support it in all scenarios.

Discussion

Throughout the last twenty years, Morocco has engaged in a deliberate development

process to facilitate a synthesis of environmental, economic, and social factors. Sustainable

development was also established as a right for all residents in the fresh 2011 Constitution.

Morocco has implemented a variety of measures in response to climate change, including the

National Charter for Environment and Sustainable Development, the National Sustainable

Development Strategy, the "Green Morocco" Plan, the Green Investment Plan, the plastic waste

law, and so on. In order to demonstrate its genuine passion towards the idea of sustainability, it

has launched strategic initiatives in important sectors such as clean energy, agribusiness,

ecotourism, and transportation.

 Morocco was one of the first nations to submit its Intended Nationally Determined

Contribution (INDC) as compliance with the 21st Session of the Conference of the Parties held in

Paris, which focuses on reduction of greenhouse gas emissions by 32% before 2030, which would

need an approximate total budget of 45 billion US dollars. The successful execution of this

promise necessitates a robust involvement of all Moroccan current societal players, especially the

finance industry, whose responsibility it is to support and promote the change for a better economic

model, including projects for combating the nation's carbon footprint and impact of global

warming, as well as investing in less environmentally hazardous resources and becoming more

interested in raising visibility of environmental and social concerns.

This sustainable financing must be built on an ecological, sociological, and regulatory risk

control system that identifies risks, measures the ecological impact of supported projects, and

tracks the remedial steps taken by their orchestrators. This could also aid in quantifying the carbon

footprint of financial companies' portfolios in order to activate corrective steps for its mitigation.

Concerned about this issue, some Moroccan banks and financial institutions started to integrate

environmental and social concerns into their internal operations and working modes in the early

2000s. Some additionally adhered to conscientious investing ideals or created particular solutions

to assist businesses involved in the process of sustainable development. This recognition, and its

interpretation into real action and policies, happens at a varying speed and in a unique manner.

To increase productivity and reliability, it is also necessary to choose an integrated

financial model that allows the entire population, including men, women, youths, and enterprises,

to have access to sustainable, innovative, high-quality, and affordable financial services that meet

their needs and are tailored to their income-generating activities.

Conclusion
 In conclusion, the function of financial management in boosting sustainability is a very

critical one. Present day research has shown that all contemporary firms need to focus on making

sustainability one of their core aims. By doing this, these firms will realize enduring commercial

achievements. The study has also shown how Morocco is engaging in a deliberate effort to boost

sustainability of its financial institutions through a variety of measures which are enshrined in its

new constitution. This illustrates the importance of sustainable financial management in a nation.

It was further discovered that sustainable financial management is essential in increasing the

productivity and dependability of the economy of a nation. To sum up the findings, financial

management has a pivotal part to play in ensuring that all business practices and development is

sustainable.

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