J Bus Ethics (2012) 108:61–79
DOI 10.1007/s10551-011-1063-y
Sustainability Practices and Corporate Financial Performance:
A Study Based on the Top Global Corporations
Rashid Ameer • Radiah Othman
Received: 29 July 2010 / Accepted: 22 September 2011 / Published online: 15 October 2011
 Springer Science+Business Media B.V. 2011
Abstract Sustainability is concerned with the impact of
present actions on the ecosystems, societies, and environ-
ments of the future. Such concerns should be reflected in
the strategic planning of sustainable corporations. Strategic
intentions of this nature are operationalized through the
adoption of a long-term focus and a more inclusive set of
responsibilities focusing on ethical practices, employees,
environment, and customers. A central hypothesis, that we
test in this paper is that companies which attend to this set
of responsibilities under the term superior sustainable
practices, have higher financial performance compared to
those that do not engage in such practices. The target
population of this study consists of the top 100 sustainable
global companies in 2008 which have been selected from a
universe of 3,000 firms from the developed countries and
emerging markets. We find significant higher mean sales
growth, return on assets, profit before taxation, and cash
flows from operations in some activity sectors of the
sample companies compared to the control companies over
the period of 2006–2010. Furthermore, our findings show
that the higher financial performance of sustainable com-
panies has increased and been sustained over the sample.
Notwithstanding sample limitation, causal evidence
reported in this paper suggests that, there is bi-directional
R. Ameer (&)
Accounting Research Institute, Faculty of Accountancy,
Universiti Teknologi Mara, Shah Alam Selangor 40450,
Malaysia
e-mail: rashidameer@salam.uitm.edu.my
R. Othman
School of Accountancy, College of Business,
Massey University New Zealand, Auckland, New Zealand
e-mail: radiahothman@gmail.com
relationship between corporate social responsibilities
practices and corporate financial performance.
Keywords Environment  Ethics  Diversity 
Performance  Sustainability
Introduction
The concept of sustainable development first became the
focus of international policy- making with the publication
of the Brundtland Report (WCED 1987), which presented
the outcome of the World Commission on Environment
and Development and served as an important foundation
for the UN Earth Summit in 1992. That report defines
sustainable development as development that meets the
needs of the present without compromising the ability of
future generations to meet their own needs. The report
provided what is arguably the most frequently quoted
definition of sustainable development, though of late, sus-
tainability has been interpreted in different ways. Robinson
(2004) argues that apparent difficulties in defining the
concept of sustainability have led sustainability practices to
be indistinguishable from green-washing, and branded as
delusional, mis-representational, and hypocritical.
At the broadest level, Gray (2010) defines sustainability
as a systems based concept and, environmentally at least, it
is probably difficult to conceptualize it as anything below
planetary and species level. A simple assessment of the
relationship between a single organization and planetary
sustainability is virtually impossible. Aras and Crowther
(2008) argue that sustainability is actually based upon
efficiency in the transformation process and equity in the
distributive effects. The management of sustainability
performance requires a sound management framework
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which firstly links environmental and social management
with the business, competitive strategy and management
and, secondly, that integrates environmental and social
information with economic business information and sus-
tainability reporting (Schaltegger and Wagner 2006).
Managing corporate sustainability requires the examination
of the impacts of social and environmental initiatives on
overall corporate profitability (Epstein and Roy 2001).
In this paper, we approach the concept of ‘sustainability
practices’ and ‘sustainable reporting’ synonymously, as a
corporation’s account of its legitimate existence in society
amid growing concern about the lack of harmony between
organization, environment, and societies. Tenuta (2010)
suggests that the sustainability report is the most operative
instrument to relate the organization with its stakeholders,
and the absence of a single referential form and of common
comparison parameters, limits its communication of [sus-
tainability] considerably. In this paper, we use reporting of
corporate sustainability practices, as a manifestation of the
integration of environmental and social management
within business processes, and examine its impact on
financial performance using a sample of top global cor-
porations. Information was drawn from a content analysis
of companies’ sustainability reports and from secondary
sources on the corporate financial performance. The review
of corporate sustainability reports was not meant to be
exhaustive but it was comprehensive enough to uncover
information about sustainability practices. Thus, our eval-
uation of sample companies’ under consideration in based
on a combination of observation, subjective judgment, and
objective calculations.
There are number of theoretical works conceptualizing
the link between environmental performance, social per-
formance, and financial performance. Much earlier, Carroll
(1979) argued that, the social responsibility of a business
includes economic, legal, ethical, and discretionary
expectations that society has of organizations at a given
point in time. Brown (1990, p. 25) suggested that ‘to speak
of an organization as ‘moral community’ allows us to
acknowledge the moral significance of the human interac-
tions and relationship within organizations’. Wood (1991)
categorized principles of social responsibility and process
of social responsiveness as throughputs, and firm’s finan-
cial performance was as one dimension of overall social
performance. Research seeking to link social responsibility
with financial performance exploded during 1980s with
two opposing views (Fredrick 2006). One view is that the
firm faces a trade-off between social responsibility and
financial performance. Those holding this view propose
that firms incur costs from socially responsible actions. A
second, contrasting viewpoint is that the explicit costs of
corporate social responsibility are minimal and that firms
may actually benefit from socially responsible actions
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R. Ameer, R. Othman
(McGuire et al. 1988). While acceptance of the latter
argument for the business case for social responsibility has
been growing; it remains to be seen, whether relationship
between social responsibility and financial performance is
perpetual.
The impact of environmental management and envi-
ronmental protection activities on corporate economic
performance has also been debated strongly for many
years. Schaltegger and Synnestvedt (2002) argued that
there is no natural or mechanical law automatically linking
environmental performance with economic performance.
The relationship holds true only in specific cases, where the
environmental and health regulations provide strong eco-
nomic incentives to companies, to make continuous
improvements in the business operations. Environmental
issues must be of certain, [maybe] major importance, to
have some impact on the company’s economic perfor-
mance. A review of theoretical framework which thrives on
precision and power to explain this alluded relationship is
as follows.
According to Schaltegger and Synnestvedt (2002)
dynamic theoretical framework, for environmental protec-
tion to be rewarding, company management would have to
identify the specific set of restrictions, opportunities,
threats, and incentives. As a next step, objectives and goals
would have to be defined, plans developed and concrete
action taken. This new rethinking will then result in a new
and different environmental profile, which in turn may
result in cost savings. They postulate and illustrate that,
beginning at a certain level of economic success; every
environmental protection activity will reduce the economic
success, which can be expected to decrease in the short
term. As long as companies are able to develop environ-
mentally friendly technologies, which reduces the marginal
costs, the economic performance improves. Since there
might be systematic differences in marginal costs of
environmental protection across industries and across
countries (due to legislations), various economic outcomes
are possible. The major conclusion that can be drawn from
Schaltegger and Synnestvedt (2002) theoretical framework
is that, relationship between environmental performance
and economic success can vary at given level of economic
success. The economic effect of corporate environmental
performance can also vary at a given environmental per-
formance level. The correlation between economic and
environmental performance, or in other words the question
of ‘when it pays to be green’, does not only depend on
company external variables (regulations, for example) but
it substantially depends on internal variables influenced by
management.
Wagner and Schaltegger (2003) put forward neoclassi-
cal environmental economics viewpoint linking environ-
mental and social issues. According to this view, the
Sustainability Practices and Corporate Financial Performance
purpose of environmental regulations is to correct for
negative externalities, which diminish social welfare.
Environmental regulations reduce these negative external-
ities; however, create additional costs thus reducing profits.
They argue that firms in industries with higher environ-
mental impact face a competitive disadvantage, if stringent
regulations burden them with higher environmental costs
relative to other industries (see also e.g., Epstein 1996).
However, another opposing ‘‘revisionist view’’ suggest
that, environmental performance would induce cost sav-
ings, increase in sales and thus improve economic perfor-
mance. According to this revisionist view, an inversely
U-shaped curve is the best possible description of rela-
tionship between environmental and economic perfor-
mance (Wagner and Schaltegger 2004). In the ‘revisionist’
view companies have an incentive to research new tech-
nologies and production approaches to reduce negative
externalities. In this regard, Environmental Management
Systems (EMS) has helped companies to systematically
identify, measure and appropriately managed their envi-
ronmental obligations and risk (Epstein and Roy 2001).
Thus, according to the ‘revisionist’ view, at least in a
dynamic perspective (or possibly even in the short term);
the ability to innovate and to develop new technologies and
production approaches is a greater determinant of com-
petitiveness and economic success. According to Rimmer
et al. (1996) a critical problem for sustainability is winning
time, especially during periods when it is perceived that
costs exceed benefits, and in such a period of uncertain
duration, best practice may be discontinued as not cost
effective. However, in the long-run, perceived benefits are
greater than perceived costs.
Wagner (2007) proposed an integration framework in
which social and environmental aspects are integrated with
business management. The notion of ‘integration’ means
the linkages of goals and activities related to socio-envi-
ronmental management with core managerial processes
and functions in those areas which are of strategic impor-
tance to the firms, namely corporate strategy, quality
management, health and safety, and social issues. He
identified four intermediate drivers of economic perfor-
mance—efficiency-related, market-related, image-related,
and risk-related. He integrates social and environmental
management with the core processes. This integration,
leads to cost savings, innovative products, high market
share and better profit margins, and reduction in work-
related accidents and injuries. Wagner (2011) posits that
‘integration’ of environmental and sustainability aspects
with general management have effect on both, economic
performance and environmental performance. This idea is
similar to Pivato et al. (2008) who drew attention to the
importance of mediating variables in the study of social
responsibility and corporate performance relationship. The
63
authors argue that the researchers should pay attention to
the intermediate performance measures such as customer
satisfaction and brand loyalty. Those companies which
value environmental protection, philanthropic behavior and
ethical business practices are perceived by customers to be
good corporate citizens, and are able to differentiate
themselves from competitors and attract customer loyalty
(Cacioppe et al. 2007).
According to the sustaining organization change litera-
ture (see, e.g., Buchanan et al. 2005; Rimmer et al. 1996;
Pettigrew 1985), several changes in organizational con-
figurations, processes, and initiatives such as employee
training (Waddock and Graves 1997) for product quality
and safety all have direct costs. However, a carefully
conceived corporate social responsibility strategy directed
at managing community relations may result in cost and
reductions. Philanthropic financial commitment is a
reflection of organizational adjustment to socio-economic
inequity. Godfrey (2005) asserts that philanthropic giving
must be perceived as a genuine manifestation of the firm’s
underlying social responsiveness in order to increase firm
value. Patten (2008) finds evidence of the relationship
between the announcement of corporate contributions to
the tsunami relief effort and subsequent change in the
market value of such donating firms. In reality, the rela-
tionship between social responsibility and corporate
financial performance varies from one firm to the other due
to stakeholder influence capacity and situational contin-
gencies (Barnett 2007).
Hypotheses
This paper builds on the study by Lopez et al. (2007) which
examines the relationship between sustainability and cor-
porate performance using a multidimensional construct
based on economic, environmental, and social indicators.
Lopez et al. (2007) used a sample of 55 firms from the Dow
Jones Sustainability Index (DJSI) and compared them with
55 firms from the Dow Jones Global Index (DJGI) for the
period of 1998–2004. Furthermore, they modeled the
direction of causality from the Corporate Social Respon-
sibility (CSR) variable to Profit before taxation after con-
trolling for firm size, leverage, and other factors. They
found a negative coefficient for the CSR variable.
Our work is different from that of Lopez et al. (2007) in
that firstly, we re-screened 100 sustainable global compa-
nies using the four indices highlighting their commitment
to sustainable practices. Secondly, in Lopez et al. (2007),
the differentiation exists between sustainable firms and
non-sustainable firms by virtue of information disclosure
on sustainability, but our methodology is superior to
this approach because we further graded a company’s
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sustainable contribution on a scale of 0 to ?4. Moreover,
Lopez et al. (2007) tested the difference in the financial
performance of companies irrespective of their industrial
classification, thereby comparing the performance of
companies in the Information Technology sector with those
in the Petroleum sector, which we believe is inappropriate
and leads to unreliable conclusions. We test hypotheses
relating to whether significant differences exist in the
performance of companies included in the list of the Top
100 sustainable companies and those which are not (here-
after referred to as the control sample). We designate a
company as a control company in the same industry sector
if its total sales are within plus/minus 10% of the sample
firm’s total sales in that year. Where it was not possible to
find a matching company using total sales, we used total
assets or even total market capitalization as at financial
year end.
We selected a series of variables to measure the com-
pany performance, focusing on the growth, return, profit-
ability and cash flows of the companies adopting the
variables used by Lopez et al. (2007). These variables are
sales (revenue) growth (SG), return on assets (ROA), profit
before tax (PBT), and cash flows from operating activities
(CFO) in US$.
According to Lopez et al. (2007) changes in man-
agement practices should be reflected in the profit and
loss statement, produced by an increase in business
volume, implying an increase in sales volume (revenue)
only in those companies which have adopted sustainable
practices. Roberts and Dowling (2002) argue that com-
panies with good corporate reputation in their commu-
nities are better able to sustain their superior outcomes
over other firms because their intangible character makes
replication by competing firms considerably more diffi-
cult. Adam and Zutshi (2004) suggest that firms’ adop-
tion of sustainable strategies should grant them
competitive advantages over other firms where no such
implementation occurs. According to marketing litera-
ture, a stronger inimitable competitive advantage
enhances product innovation and introductions and sales
force effectiveness, thus increasing cash flows and
profitability (Dowling 2001). Kurucz et al. (2008) iden-
tify four categories of benefits that firms may attain from
engaging in corporate social responsibility activities: (1)
cost reduction; (2) competitive advantage; (3) developing
reputation and legitimacy; and (4) seeking win–win
outcomes. Efficient and reliable contracting with suppli-
ers, employees, and creditors should also lead to lower
contracting and monitoring costs for the sustainable firm
compared to other firms, thereby increasing the return on
assets (Roberts and Dowling 2002). Lee et al. (2009)
suggest that the leading corporate social performance
(CSP) firms proactively manage their CSP profile and
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obtain lower cost of equity capital, thereby indicating
that financial markets value CSP. We investigated all the
firms according to their activity sectors to determine
whether significant differences exist in the evolution of
the performance indicators over the period of
2006–2010. In this connection the following hypotheses
were tested:
H1 Sales/revenue growth (SG) of the Global most sus-
tainable companies is higher than SG in the control com-
panies over the period of 2006–2010.
H2 Return on Assets (ROA) of the Global most sus-
tainable companies is higher than ROA in the control
companies over the period of 2006–2010.
H3 Profit before tax (PBT) of the Global most sustainable
companies list is higher than PBT in the control companies
over the period of 2006–2010.
H4 Cash flows from operating activities (CFO) of the
Global most sustainable companies are higher than CFO in
the control companies over the period of 2006–2010.
Data and Methodology
Our research design combines both quantitative and qual-
itative methods. Specifically, the qualitative approach is
used in the content analysis procedure and the quantitative
approach is employed for statistical analysis. The following
sections explain the characteristics of the target population,
sources of data, sustainable practices checklist, content
analysis procedure, and appropriate statistical techniques
that are used for testing the hypotheses.
Characteristics of the Target Population
The target population for this study is the top 100 sus-
tainable global companies in 2008. The names of these
companies were obtained from www.global100.org which
is an annual project of the Global Sustainability Research
Alliance. These companies have been selected from a
universe of 3,000 firms from the developed countries and
emerging markets, and they represent 95% of equities in
North America, Europe and Korea, and 30% of equities in
emerging markets. The top ten per cent list of companies
(or 300 companies) are screened by the Corporate Knights
Research Group and Inflection Point Capital Management
against ten equally weighted Environment, Social, and
Governance (ESG) Key Performance Indicators (KPIs) and
a Transparency Indicator which is defined as a percentage
of data points on which the company provides data and the
level of GRI disclosure. These KPIs are defined as follows:
Sustainability Practices and Corporate Financial Performance 65

Table 1 Sample distribution

1. Energy Sales (US$) divided by total direct and
productivity indirect energy consumption (gigajoules); Country N GICS industry sector N
2. Carbon Sales (US$) divided by total CO2 and CO2
productivity equivalents emissions (tones); Australia 4 Consumer discretionary 17
3. Water Sales (US$) divided by total water use (cubic Austria 2 Consumer staples 7
productivity meters); Belgium 1 Energy 6
4. Waste Sales (US$) divided by total waste produced Canada 3 Financials 19
productivity (tones); Denmark 3 Health care 6
5. Leadership Women on the corporate board (%) Finland 6 Industrials 17
diversity
France 6 Information technology 9
6. CEO-to-average Ratio of highest paid officer’s compensation
worker pay to average employee compensation (3 years Germany 6 Materials 9
average); Italy 2 Telecommunication 3
7. % Tax paid Reported tax obligations paid in cash (3 years Japan 13 Utilities 5
average, %); The Netherlands 2
8. Sustainability Composite score of whether there is a Spain 3
leadership sustainability committee in the company and
Sweden 5
whether a director is on it;
Switzerland 3
9. Sustainability pay Whether or not at least one senior officer has
link his/her pay linked to sustainability; United Kingdom 22
10. Innovation R&D divided by sales (3 years average) United States 17
capacity
Sources of data

These KPIs were developed by the Corporate Knights
Research Group (CKRG), a signatory to the United
National Principles of Responsible Investment, with sup-
port from Inflection Point Capital Management, and with
input from the Global 100 Council of Experts which is
comprised of thought leaders at the interface of sustain-
ability and finance. Given their pedigree, these KPIs reflect
the most meaningful indicators in the widest sense. The
CKRG identified these indicators after a comprehensive
review of mainstream brokerage research, papers and
reports contributed by fiduciary investors to the PRI
Enhanced Research Portal, work by the Canadian Institute
of Chartered Accountants, and the annual Thomson
Reuters Extel/UKSIF Socially Responsible Investing and
Sustainability Survey.
All companies were scored relative to their industry
peers (these industry peers are not in the sample); each
company receives a score of 0–1 per KPI and a score of
0–1 on the Transparency indicator. The sum of ten indi-
cators and one Transparency indictor was normalized to a
scale of 0–100 and then companies were ranked on the
basis of this score. This process, in conjunction with a final
round of vetting from teams at Inflection Point Capital
Management and Global Currents Investment Manage-
ment, was used to winnow down the short list of 300 to the
Global 100 Most Sustainable Companies in the World,
respecting the sector weightings for the MSCI ALL
Country World Index (ACWI). Table 1 shows the sample
distribution.
We downloaded companies’ sustainability reports for
the fiscal year end 2008 from their websites or the Global
Reporting Initiative website www.globalreporting.org/
GRIReports/. For some companies in our sample, a sus-
tainability report was not available from either source;
rather their sustainability accomplishments were narrated
on their websites according to GRI Reporting categories.
For these companies only, we searched their WebPages to
collect information. For instance, Rio Tinto’s HTML sus-
tainability report is located within the Sustainability section
of its website. Inditex SA uses an interactive GRI Content
Index navigating the sustainability report on its website.
Two companies did not have 2008 sustainability reports
and therefore had to be excluded from the analysis.
Financial data for the testing of hypotheses were down-
loaded from Thomson financials Worldscope from 2006 to
2010 in US$ to facilitate comparison across countries.
Sustainability Evaluation Checklist
There are no universally accepted sustainability standards,
or methodologies for measuring, assessing and/or moni-
toring a company’s progress towards sustainability. Indeed,
various methods, such as external audit, third party awards/
accreditation processes, standards/codes benchmarking of
sustainability (Singh et al. 2009), indices (Lopez et al.
2007), and non-quantifiable sustainability initiatives
(Székely and Knirsch 2009), can be identified. The envi-
ronmental performance of a company can be defined by
means of a firm’s physical performance with regard to
environmental aspects based on physical environmental
performance indicators (Wagner and Schaltegger 2003).
Another approach is the use of Environmental Shareholder

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Value (ESV) and environmental competitiveness. ESV
approach links environmental performance with share-
holder value drivers (Wagner and Schaltegger 2004). Other
empirical measures that have been used to assess corporate
environmental performance are hazardous waste recycled
(Al-Tuwaijri et al. 2004), toxic releases (Patten 2002),
work-related injury rates (Epstein and Roy 2001), and
environmental ratings of firms (e.g., Dow Jones Sustain-
ability Index).
Recent studies have followed new approaches which use
input–output method for approaching sustainability as a
system-based concept. For example, Henri and Journeault
(2010) have used an integrative matrix which ranks envi-
ronmental performance on two scales: (1) process versus
results and (2) internal versus external dimension. They
argue that the junction of these two scales provides a
framework for organizing the various views of environ-
mental performance. We needed information to answer the
question: how do companies actually integrate environ-
mental and social responsibility activities within business
processes? For this purpose, we focus on: (1) community,
(2) environment, (3) diversity, and (4) the ethical standards
dimension, using the stakeholder model. We chose these
four dimensions because they are internally connected and
serve as a reasonable reflection of progress toward sus-
tainable development. Our approach is also supported by
recent studies (see, e.g., Epstein and Roy 2001). Epstein
and Roy (2001) sustainability performance indicators
include work force diversity, environmental impacts,
bribery, corruption, community involvement, ethical
sourcing, human rights, product safety, and usefulness.
Schaltegger and Synnestvedt (2002) suggested the use of
level of environmental protection achieved and kind of
environmental protection practiced to measure environ-
mental protection. Their ideas are akin to Warhurst (2002)
proposed sustainability measurement, which includes that
the measurement of sustainable development in two step:
firstly, an examination of the progress made in a number of
selected individual fields (in our case four dimensions), and
secondly, an assessment of the overall progress made
towards sustainable development as determined by a
combination of these individual fields. Bansal (2005) also
proposed a corporate sustainable development construct
based on three principles: economic integrity, social equity,
and environmental integrity.
Content Analysis Procedure
Content analysis has been widely used in the CSR literature
(Rondinelli and Berry 2000). The main idea underlying this
approach is to search for specific corporate information and
reduce it into mutually exclusive categories. It has been
argued that companies that engage in socially responsible
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R. Ameer, R. Othman
activities provide more informative and extensive disclo-
sures than do those which are less focused on advancing
social goals (Gelb and Strawser 2001, p. 11). As a first step,
we generated a series of questions, portraying those issues
in which companies show commitment to: (1) community,
(2) environment, (3) diversity, and (4) ethical standards.
These questions/items were adapted from Fadul et al.
(2004). There are 22 items for environment, 21 items for
diversity, 12 items for community, and 13 items for ethical
standards. In the second step, each item was assigned a
score from ?4 to 0 using the wording of the sustainability
report in the following manner: if a company reported a
significant tangible positive contribution related to a
question (item), we gave it a score of ?4. A company’s
significant tangible positive contribution might be in the
form of financial commitments to needy communities, the
adoption of specific codes of conduct, new technologies
and/or redesigned products to conserve energy, water,
materials and/or land. Diageo plc, UK, for instance, high-
lighted, ‘‘our financial commitment to our communities is
to invest 1% of Diageo’s operating profit in social projects.
In 2008 the total of £23.9 million actually represented 1.1%
of operating profit’’ (Diageo Corporate Citizenship Report
2008, p. 13). Accor stated, ‘‘[In] February 2008, it has
purchased electricity produced in part by wind turbines…
partner with the US Environmental Protection Agency in
searching for ‘‘green’’ electricity solutions… it will pur-
chase 1,572,000 kwh of renewable energy a year, reducing
CO2 emissions by around 900 metric tons’’ (Accor Annual
Report 2008, p. 76). And Acciona stated, ‘‘In 2007, the
Board of Directors approved the Code of Conduct, and
with it, the creation of an Ethical Channel, a tool enabling
any employee to file a confidential report about a breach of
the Code… the Ethical Channel analyse all alleged brea-
ches of the Code which may affect Acciona’s values and
principles’’ (Acciona Sustainability Report 2008, p. 85).
If a company reported a tangible positive contribution,
we gave it a score of ?3. A company’s positive tangible
contribution might be in the form of statistics and data
related to its activities. Adidas, for example, provided key
employee statistics such as: total number of employees,
total employees - male (%), total employees - female
(%), management positions held by males (%), manage-
ment positions held by females (%), average age of
employees (in years), employee turnover (in %), average
tenure per employee (in years) and annual training hours by
employee (Adidas Sustainability Performance Review
2008, p. 33).
If a company reported a relatively small positive contri-
bution, we gave it a score of ?2. A company’s relatively small
positive contribution might be in the form of statements such
as that provided by Intel, which states that the company
‘‘promotes equal employment opportunity for all applicants
Sustainability Practices and Corporate Financial Performance
and employees, regardless of non-job-related factors,
including but not limited to race, color, religion, gender,
national origin, ancestry, age, marital status, sexual orienta-
tion, gender identity, veteran status, and disability’’ (Intel
Corporate Responsibility Report 2008, p. 52). If a company
reported no tangible contribution in the form of statistics and
data, we gave it a score of 1; and if a company did not report
any information at all, we gave it a score of 0 (see Appendix 1
for the list of questions). After grading the items for each
company, as a last step we summed up the total scores for all
the events to obtain a company specific index value.
Our scoring approach is akin to SustainAbility and the
United Nations Environment Program (UNEP) which also
uses 0–4 scores, where ‘‘0 means that the area covered by the
[SustainAbility–UNEP] is not discussed at all and ‘‘4’’
means that the reporting [on the issue] is comprehensive
(SustainAbility–UNEP 1997). Though our choice of the
number of items to gauge a company’s commitment to a
particular social-environmental dimension is arbitrary but
we argue that our grading approach provides a meaningful
approach to assess the sustainable development commit-
ments of the global organizations. Other comparative stud-
ies, for instance, Morhardt et al. (2002) have used more than
100 items or more items to assess companies’ commitment to
social–economic–environmental issues but without grading.
Content Validity
We established the content validity of the items underlying
each of these four indices by comparing them with the
items used by CSR rating agencies worldwide to screen
companies for socially responsible investment. A list of
these CSR rating agencies was obtained from the Bertels-
mann Foundation report entitled, ‘Who is who in Corporate
Social Responsibility Rating? A survey of internationally
established rating systems that measure Corporate
Responsibility’. This report provides a profile and the
screening methods of more than 50 independent CSR rat-
ing agencies worldwide (see Appendix 2 for details). We
matched the wording of statements used by these agencies
to rank companies according to their agreement with those
statements under each of our four indices. Where an exact
occurred, we considered that item a valid item, although for
some statements we did not find the exact or near match,
and in these instances, the statements were placed in the
‘others’ category. This procedure was repeated laboriously
for all items in four indices, and the results of this exercise
confirmed that most of the items were valid.
Reliability Analysis
Reliability refers to the purity and consistency of a mea-
sure, to repeatability, to the probability of obtaining the
67
same results again if the measure were to be duplicated. A
reliable measurement is one that allows for the same result
to be achieved on repeated occasions (De Vaus 1986).
Adequate reliability is a precondition of validity. The
reliability of a scale indicates how free it is from random
error. One of the most commonly used indicators of
internal consistency is Cronbach’s alpha coefficient rang-
ing from 0 to 1, with higher values indicating greater
reliability. Ideally, a Cronbach’s alpha of in the range of
0.6–0.7 is acceptable, while alphas below 0.6 are consid-
ered poor, and those over 0.8, good (Nunnally 1978). We
calculated Cronbach’s alpha for the items under EI, CI, DI,
and ETI finding these to be equal to 0.885, 0.883, 0.858,
and 0.904, respectively, thereby suggesting that selected
items from Fadul et al. (2004) who adapted these items
from Stone (2001) were reliable for the multidimensional
construct of sustainability.
Results and Discussion
In this section, we report the findings regarding the four
indices CI, DI, EI, and ETI, respectively, which are
important not only in identifying the companies’ commit-
ments to sustainable practices but also in helping to support
(or otherwise) hypotheses for each respective industry
sector. For CI, there were two clusters: (1) Australia,
United Kingdom, and United States and (2) Canada,
France, Japan, and Switzerland. European countries
(excluding UK) Belgium, The Netherlands, and Spain have
relatively lower values of the index (Table 2).
For DI, there were two clusters. This first cluster includes:
France, Japan, Australia, and Switzerland. Although at the
first ranking, some of the European countries such as Italy,
Belgium, and Sweden appear very low, this is not surprising
given the fact that these countries have greater concern for
diversity through immigration. The performance among
other European countries varies on the diversity matters.
Furthermore, even on the diversity issues, the United States
and Canada fall in the third clusters with index values less
than 25. The Japanese companies have performed better than
companies in European countries, which is surprising given
the very high power distance observed in Japan. This shows
that Japanese corporations have a distinct culture surpassing
the national culture especially when the organization is
widely spread across the map of the world, and thereby being
susceptible to global influences that gradually reshaping the
way they work. Also, in furthering organizational objectives,
and for the sake of survival, the remolding of the organiza-
tional culture to one that is mostly acceptable in almost all
countries is a necessity.
For the EI, there were also two clusters, the first
including Japan and The Netherlands, and the second
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68 R. Ameer, R. Othman

Table 2 Sustainability
N CI DI EI ETI
practices—country-level
analysis Australia 4 30.00 26.75 51.00 20.75
Austria 2 18.00 13.00 44.67 27.50
Belgium 1 24.00 15.00 46.00 12.00
Canada 3 27.67 21.66 52.33 23.00
Denmark 3 10.67 26.00 46.67 15.33
Finland 6 11.67 13.66 47.17 11.33
France 6 27.50 28.00 53.00 20.17
Germany 6 20.17 18.67 40.17 11.17
Italy 2 14.50 14.00 25.50 11.00
Japan 13 25.92 27.46 59.00 21.08
The Netherlands 2 22.00 20.00 56.00 24.00
Spain 3 22.00 24.67 45.33 39.00
Sweden 5 18.20 19.67 48.20 22.00
Switzerland 3 26.00 26.67 22.67 22.67
UK 22 30.95 19.27 44.82 26.01
US 17 37.00 23.00 56.76 26.24

including countries such as Canada, France, and Australia.
Though other European countries such as Belgium, Fin-
land, Denmark, Spain, Sweden, and the United Kingdom
have respectable index values, Italy has the lowest value of
EI. Thus, our findings confirm that sustainability has been
overwhelmingly associated with environmental perfor-
mance by these global companies underlining their grave
concern about the environment compared to other issues.
Lastly, for the ETI index, the results contrast substantially
with those obtained for the other three indices, an outcome
which was mainly because most companies did not dis-
close their policies on issues such as fair dealings, and
contribution to political parties. Information was limited in
their reports. We can identify only one cluster including
Spain, United Kingdom, and United States.
Sustainable Practices—Industry Clusters
This section reports on the clusters based on the industrial
classification. Overall, the Utilities sector is top among the
activity sector with the highest index value for Commu-
nity—31.8; Environment Index—53.80, Diversity and
Ethical practices—27.8. This is followed by the Consumer
Discretionary sector. Overall these findings show that most
industries have performed better in their Environment
Index category compared to other categories. The Energy
and Materials sector has a higher index value for the
Environment and Ethical indices but is lower on the
Community and Diversity indices. Interestingly, the
financial sector has the lowest Ethical index value com-
pared to activity sectors, a factor which can be said to
underlie the current public discontent with the opacity of
financial products. The Industrials, Information Technol-
ogy, and Telecommunication sectors lag behinds other
activity sectors in three of the four indices. Morhardt et al.
(2002) have also found significant dispersion in the envi-
ronmental performance scores of industrial sectors using
SustainAbility/UNEP guidelines. This analysis reveals that
among the top global sustainable organizations there is a
considerable dissimilarity in the progress towards the
attainment of sustainable development. These indices show
more emphasis on the eco-concentric issues than ethno-
centric issues.
Besides country and industry-level analysis, we also
analyzed the items in each index (see Appendix 3) to
expose differences in grading of the underlying constituent
items of the index values. Clearly, there are differences
across underlying items within each index, and the dis-
persion in the scores further highlights that not many
companies have made tangible positive contributions, and
that several others have only made small inroads in this
direction. The adoption of superior sustainable practices is
expected to produce improved performance for such
companies, i.e., increased profitability could be observed as
a result of the exploitation of new resources and innova-
tions in manufacturing processes, which may be reflected
in increased sales (revenue) volume and greater profit
growth due to reduction in costs. To sustain environmental
protection, a few companies in information technology and
automobile industries, have implemented Product-based
Environment Management System (PBEMS) and Sustain-
ability Management Systems (SMS) (McElhaney et al.
2005). The next section explores whether there are

123
Sustainability Practices and Corporate Financial Performance 69

Table 3 Sustainability
CI DI EI ETI
practices—industry-level
analysis Consumer discretionary 27.24 26.24 52.29 24.47
Consumer staples 27.29 25.71 46.57 17.86
Energy 23.00 19.33 53.50 23.33
Financials 27.58 21.63 47.00 13.68
Health care 28.17 23.59 42.50 18.50
Industrials 21.88 20.71 47.82 14.70
Information technology 27.56 18.76 45.67 20.88
Materials 21.33 21.22 53.11 23.44
Telecommunication services 25.00 25.00 45.33 22.66
Utilities 31.80 22.80 53.80 27.80

significant differences between the economic and financial
performance of companies with better practices and
otherwise as disclosed in their sustainability reports.
We find significant higher mean SG, ROA, PBT, and
CFO in some activity sectors of the Global 100 most sus-
tainable companies compared to the control companies
over the period of 2006–2010. H1 was accepted for the
Global 100 most sustainable corporations operating in the
Industrial sector, i.e., these companies have significantly
higher sales growth compared to control sample companies
in the same sector. H2 was supported for the Consumer
Discretionary and Telecommunication services sectors,
whose companies have significantly higher ROA compared
to control sample companies in the same sector. Last but
not the least, H3 and H4 are accepted for the Consumer
Discretionary, Consumer Staples, Industrials and Tele-
communication services sectors, respectively. When we
compared the t test results in Table 4 with the values of the
four indices in Table 3, the findings are less than ordinary.
The Consumer Discretionary sector has a relatively
higher value for the four indices, and has significantly
higher ROA, PBT, and CFO compared to the Utilities
sector. Furthermore, it is intriguing that the Consumer
Staples, Industrials and Telecommunication services sec-
tors which have scored higher on only one of the four
indices have significantly higher SG, ROA, PBT, and CFO
compared to Health Care and Materials which have scored
on two of the four indices, respectively. These findings beg
a question: is a selective sustainable development strategy
enough to achieve bottom-line results? It is plausible that
since sustainable practices reduce waste generation,
increase efficiency, and result in better products and ser-
vices, the Consumer Staples, and Industrial sector are
advantaged compared to other sectors. However, all t test
results are less reliable due to non-normality of data (tested
using Kolmogorov–Smirnov Z test), and hence, non-para-
metric Mann–Whitney U tests were used to test the
robustness of results (see Table 5).
The robustness of our findings in Table 4 is supported
by using the Mann–Whitney U test values. H1 is supported
for Industrials only, and H2 is supported for the Consumer
Discretionary, and Telecommunications sectors. H3 is now
supported for three sectors: Energy, Health Care, and
Materials, respectively. Similarly, H4 is also accepted for
the Materials sector. These findings confirm that the
application of sustainable practices adopted by the Global
most sustainable companies lead to long-term differentia-
tion in their business practices which eventually produces
better financial performance as measured by performance
indicators in this paper. It is important to mention that
though the global companies were ranked as at year end
2008, the evolution of performance from 2006 to 2007
shows that the differences measured by mean performance
indicators existed between the sample and control compa-
nies, continued for the subsequent periods 2006–2008,
2006–2009, and 2006–2010, respectively.Last but not the
least, while Lopez et al. (2007) arrived at the conclusion
that differentiation between DJSI and DJGI companies
with respect to the performance indicators studied by them
was not consistent and did not increase over time over the
period of 1998–2004, we find that differentiation in ROA,
PBT, and CFO has been consistent and increases over the
period of 2006–2010.
Sustainability—corporate performance causal direction
There are different opinions about the interaction between
environmental performance, social performance, and
financial performance. The empirical research has not
reached at a consensus. According to Friedman (1970)
social responsibility involves costs and therefore can
worsen firms’ performance. Preston and O’Bannon (1997)
and Jensen (2001) argue that social responsibilities might
constrain firms’ value maximization and lead to poorer
financial performance. It is vital to establish the direction
of causality: whether conscientious companies are more

123
70 R. Ameer, R. Othman

Table 4 Results from the hypotheses testing using the independent sample t tests
GICS sectors SG ROA
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

Consumer discretionary
t value -1.7630 -2.1360 -2.267 -2.0576 1.5650 2.3098 2.5865 2.7879
p value 0.0820c 0.0354b 0.0254b 0.0412b 0.1234 0.0232b 0.0112a 0.0060a
Consumer staples
t value -2.2340 -3.2580 -3.9667 -3.9207 1.4685 1.3802 1.4440 1.6290
p value 0.0360b 0.0030a 0.0000a 0.0000a 0.1657 0.1820 0.1607 0.1120
Energy
t value 1.0102 1.0060 1.0201 1.0124 0.7546 0.9820 1.3435 1.0720
p value 0.3365 0.3290 0.3180 0.3211 0.4640 0.3403 0.1930 0.2956
Financials
t value -1.9160 -2.2222 -2.4381 -2.4651 -0.8621 -0.5312 -0.9531 -0.9790
p value 0.0660a 0.0321b 0.0180b 0.0160b 0.3921 0.5970 0.3431 0.3291
Health care
t value -0.7850 -0.8780 -0.8800 -1.0945 -0.0270b 0.5631 1.0170 1.4520
p value 0.4450 0.3890 0.3865 0.2817 0.9789 0.5771 0.3150 0.1530
Industrials
t value 3.0605 4.0690 4.7167 4.7940 -1.6520 -1.7140 -1.6630 -1.7634
p value 0.0030a 0.0000a 0.0000a 0.0000a 0.1070 0.0921c 0.1092 0.0812
Information technology
t value -1.3378 -1.6465 -1.9509 -1.8666 -0.0370 -0.5556 -0.5243 -0.8032
p value 0.1923 0.1090 0.0570c 0.0645c 0.9713 0.5821 0.6053 0.4254
Materials
t value -1.5334 -1.6376 -1.7153 -1.9712 0.0321 07745 0.9203 1.1133
p value 0.1441 0.1131 0.0942c 0.0550c 0.9751 0.4442 0.3625 0.2716
Telecommunication
t value -3.0178 -3.7102 -4.5412 -4.9470 3.0699 3.5143 3.7130 3.6413
p value 0.0190a 0.0040a 0.0012a 0.0000a 0.0222b 0.0060a 0.0020a 0.0020a
Utilities
t value -1.5660 -1.7970 -1.7323 -1.5064 -0.4729 -1.4450 -1.5566 -1.4653
c c
p value 0.1402 0.0865 0.0945 0.1423 0.6443 0.1632 0.1280 0.1523
GICS sectors PBT CFO
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

Consumer discretionary
t value 2.110 2.8043 2.8167 3.1010 2.0213 2.3140 2.5760 2.7998
p value 0.0412b 0.0080a 0.0060a 0.0020a 0.0502b 0.0240b 0.0120b 0.0060a
Consumer staples
t value 2.6580 3.0740 3.5730 3.6300 2.5730 3.1460 3.6470 3.6190
p value 0.0140b 0.0040a 0.0010a 0.0010a 0.0170b 0.0030a 0.0010a 0.0010a
Energy
t value 0.5004 0.6567 0.6330 0.4930 0.2943 0.3890 0.2660 0.2412
p value 0.6234 0.5176 0.5303 0.6356 0.7254 0.7000 0.7920 0.8102
Financials
t value 0.4851 -1.1361 -1.3609 -1.4592 1.9689 0.2990 -0.0982 -0.3360
c
p value 0.6302 0.2601 0.1780 0.1481 0.0561 0.7661 0.9352 0.7381
Health care
t value 0.8679 1.0707 1.1474 1.1333 -0.9980 -0.9931 -0.9891 -0.9832

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Sustainability Practices and Corporate Financial Performance 71

Table 4 continued
GICS sectors PBT CFO
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

p value 0.3986 0.2930 0.2580 0.2624 0.3412 0.3342 0.3333 0.3312

Industrials
t value 2.0000 2.0491 2.6666 2.6391 1.8624 2.2934 2.5152 2.7062
p value 0.0530b 0.0201b 0.0090a 0.0102b 0.0720c 0.0262a 0.0140a 0.0080a
Information technology
t value 1.0923 1.2756 1.1560 1.1821 1.0990 1.1851 1.2521 1.3421
p value 0.2821 0.2080 0.2521 0.2412 0.2809 0.2431 0.2125 0.1842
Materials
t value -0.5512 -1.5642 -1.2565 0.0514b 0.9172 1.3782 1.8552 2.0962
p value 0.5890 0.8771 0.9000 0.9590 0.3392 0.1753 0.0680c 0.0403b
Telecommunication services
t value 2.5460 3.0750 3.1245 3.1730 2.6940 3.4023 3.7509 3.7433
p value 0.0460b 0.0130b 0.0080a 0.0060a 0.0404b 0.0090a 0.0030a 0.0012a
Utilities
t value -1.4213 -1.9132 -2.2046 -2.2040 -0.7832 -1.1145 -1.1444 -1.5332
p value 0.1790 0.0670c 0.0345b 0.0340b 0.4450 0.2634 0.2615 0.1332

Summary of the results using independent sample t test

Hypothesis Hypotheses accepted for activity sector Hypotheses rejected for

H1 Industrials only All other sectors except industrials

H2 Consumer discretionary, telecommunications
H3 Consumer discretionary, consumer staples,
industrials, telecommunications
H4 Consumer discretionary, consumer staples,
industrials, telecommunications
All other sectors except consumer discretionary,
telecommunications
All other sectors except consumer discretionary,
consumer staples, industrials, telecommunications
All other sectors except consumer discretionary,
consumer staples, industrials, telecommunications

The performance variables are sales growth (SG) calculated as 5-year growth rate in sales/revenue; return on assets (ROA) calculated as profit
before tax (PBT), and cash flows from operating activities (CFO)
a b c
1% significance, 5% significance, 10% significance

profitable, or is it that more financially successful compa-
nies are more conscientious? In order to answer the first
question, we used regression model whereby the values of
four indices CI, DI, EI, and ETI (hereafter independent
variables) were regressed on the profit before taxation in
year 2009 (hereafter dependent variable, PBT2009), for a
firm i in country j
PBT2009 ¼ a þ b1 CIi;j þ b2 DIi;j þ b3 EIi;j þ b4 ETIi;j þ ei;j;
ð1Þ
In order to answer the second question, we used a
distributed -lag model, using two lags of profit before
taxation (PBT2007, PBT2008)to measure the lag effect of past
profitability on the four indices (CI, DI, EI, and ETI),
respectively. Scholtens (2008) has used a similar approach for
the US sample. In this way, our model would explain whether
past financial performance has any effect on sustainability
practice of the global companies in 2008 or not.
CI2008 ¼ /1 þ /2 PBT2006 þ /3 PBT2007 þ mi;j; ð2Þ
DI2008 ¼ /1 þ /2 PBT2006 þ /3 PBT2007 þ mi;j; ð3Þ
EI2008 ¼ /1 þ /2 PBT2006 þ /3 PBT2007 þ mi;j; ð4Þ
ETI2008 ¼ /1 þ /2 PBT2006 þ /3 PBT2007 þ mi;j; ð5Þ
These equations (2–5) will test whether more finan-
cially successful companies are more conscientious
[sustainable]?
The estimation results of Eq. 1 show that coefficient of
CI is significantly positive while coefficient of EI is sig-
nificantly negative (see Table 6, Panel A). These results do
not provide a stronger support to our conjecture that global
organizations sustainability practices have significant
positive impact on their profitability, as only focus on the
community practices increases the profitability. Further-
more, these results show that focus on the environmental
responsibilities involves high costs and therefore it reduces

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72 R. Ameer, R. Othman

Table 5 Results of hypotheses testing using the Mann–Whitney U tests

GICS sectors SG ROA
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

Consumer discretionary
U value 512.00  1067.00  1831.50  2694.00  331.00   726.50   1400.50   2027.50  
p value 0.0780c 0.0460b 0.0330b 0.0720c 0.0160 0.0020a 0.0030a 0.0030a
Consumer staples
U value 42.50  83.00  133.50  199.00  66.000 161.50 296.00 371.50
b a a
p value 0.0310 0.0010 0.0000 0.0000a 0.1507 0.1820 0.1380 0.1160
Energy
U value 22.00 68.00 131.00 151.00 45.00 103.00 187.00 245.00
p value 0.5833 0.4140 0.2245 0.3190 0.5540 0.3983 0.3190 0.3160
Financials
U value 451.00 984.00 1676.00 2120.00 440.00 1077.00 1904.00 2283.00
p value 0.7244 0.5040 0.2454 0.2453 0.1823 0.2340 0.1312 0.1070
Health care
U value 64.00 137.00 258.00 401.00 68.00 135.00 222.00 267.00
p value 0.6710 0.4433 0.5355 0.9499 0.8439 0.4050 0.1740 0.0920c
Industrials
U value 277.00   607.00   1081.00   1468.00   390.00 928.00 1655.00 2090.00
a a a
p value 0.0050 0.0000 0.0000 0.0000a 0.3903 0.5187 0.4712 0.3444
Information technology
U value 133.00 314.40 564.00 800.50 160.00 359.00 611.00 822.50
p value 0.3723 0.3879 0.3470c 0.4695c 0.9636 0.9241 0.6770 0.2944
Materials
U value 88.00 219.00 400.00 473.00 134.00 289.00 490.50 567.00
p value 0.1556 0.1809 0.1589 0.1324 0.9869 0.6830 0.3960 0.2356
Telecommunication
U value 21.00 45.00 78.00 121.00  21.00   45.00   83.00   114.00  
p value 0.0000a 0.0000a 0.0000a 0.0000a 0.0105b 0.0000a 0.0000a 0.0000a
Utilities
U value 25.00 57.50 105.00 158.00 29.00 48.00 89.00 114.00
p value 0.5052 0.4102 0.4020 0.3809 0.7986 0.1789 0.1490 0.1380
GICS sectors PBT CFO
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

Consumer discretionary
U value 341.00   739.00   1421.00   1933.00   259.00   625.00   1162.00   1659.00  
b a a a b b b
p value 0.0412 0.0080 0.0060 0.0020 0.0502 0.0240 0.0120 0.0060a
Consumer staples
U value 39.00   85.00   151.00   216.50   38.00   81.50   140.50   207.00  
a a a a b a a
p value 0.0060 0.0010 0.0000 0.0000 0.0050 0.0000 0.0000 0.0000a
Energy
U value 25.00 57.00 102.00 116.00   26.00 74.00 105.00 117.00  
p value 0.0214 0.0040 0.0010 0.0010 0.0254 0.0250 0.0010 0.0010
Financials
U value 465.00 1178.00 2181.00 2617.00 461.00 1648.00 2223.00 2732.00
p value 0.3112 0.7471 0.8968 0.7480 0.2879 0.9568 0.9265 0.9881
Health care
U value 40.00   88.00   156.00   199.00   50.00 123.00 211.00 261.00  

123
Sustainability Practices and Corporate Financial Performance 73

Table 5 continued
GICS sectors PBT CFO
2006–2007 2006–2008 2006–2009 2006–2010 2006–2007 2006–2008 2006–2009 2006–2010

p value 0.0680 0.0190 0.0060 0.0040 0.2190 0.2260 0.1123 0.0722c

Industrials
U value 216.00   532.00   983.00   1382.00   233.00   465.00   937.00   1243.00  
a a a a a a a
p value 0.0000 0.0000 0.0000 0.0000 0.0010 0.0000 0.000 0.0000a
Information technology
U value 100.00 214.00 391.00 549.00   98.00 225.00 381.00 582.00  
c a a a a a a
p value 0.0503 0.0090 0.0040 0.0010 0.0440 0.0160 0.0030 0.0020a
Materials
U value 101.00 213.00   385.00   449.00   103.00 233.00 394.00   465.00  
p value 0.1445 0.0360b 0.0190a 0.0080a 0.1579 0.1533 0.0864c 0.0150b
Telecommunication services
U value 25.00   54.00   106.00   147.00   27.00   57.00   97.00   135.00  
p value 0.0260b 0.0040b 0.0010a 0.0050a 0.0650b 0.0120a 0.0010a 0.0002a
Utilities
U value 23.00  50.00  94.00  117.00  24.00 54.00  110.00 135.00 
c b b c
p value 0.1460 0.0530 0.0360 0.0250 0.1730 0.0832 0.1160 0.0502c

Summary of the results using independent sample t test

Hypothesis Hypotheses accepted for activity sector Hypotheses rejected for

H1 Industrials only All other sectors except industrials

H2 Consumer discretionary, telecommunications All other sectors except consumer
discretionary, telecommunications
H3 Consumer discretionary, consumer staples, industrials, Information technology, utilities
energy, health care, materials, telecommunications
H4 Consumer discretionary, consumer staples, industrials, Energy, financials, health care,
materials, telecommunications information technology, utilities

The performance variables are sales growth (SG) calculated as 5-year growth rate in sales/revenue; return on assets (ROA) calculated as profit
before tax (PBT), and cash flows from operating activities (CFO)
a b c
1% significance, 5% significance, 10% significance
 
Mean rank for sample companies is lower than control companies
  
Mean rank for sample companies is higher than control companies

firms’ profitability. The estimation results of Eqs. 2–5
show that past profitability has significant positive impact
only on the community and ethical responsibilities. Similar
findings have also been reported by Al-Tuwaijri et al.
(2004).
Conclusion
This paper tests the hypothesis that companies with supe-
rior sustainability practices have superior financial per-
formance and growth than those companies which do not
place emphasis on sustainability. In this paper, first we
examined the sustainability reports of the global sustain-
able corporations and developed four indices reflecting
global companies’ commitment to their ethical, environ-
mental, community, and diversity responsibilities. Our
findings show that global sustainable companies put more
emphasis on the eco-centric issues compared to ethno-
centric issues. Overall our statistical results confirm that
that companies which place emphasis on sustainability
practices have higher financial performance measured by
return on assets, profit before taxation, and cash flow from
operations compared to those without such commitments in
some activity sectors. Furthermore, our findings show that
the higher financial performance of sustainable companies
has increased and been sustained over the periods
2006–2008, 2006–2009, and 2006–2010, respectively. We
find that ROA, PBT, and CFO have consistently increased
over the period 2006–2010. Despite limitation of sample

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74 R. Ameer, R. Othman

Table 6 Regression results

Panel A
Coefficients Constant CI DI EI ETI Adj. R2 N

Eq. 1: PBT2009 = a ? b1CIi,j ? b2DIi,j ? b3EIi,j ? b4ETIi,j ? ei,j

7.0351a 0.0317b 0.0218 -0.0321c 0.0024 0.024 98
t value 12.3698 2.0466 1.5522 -2.5544 0.1811
p value 0.0000 0.0445 0.1252 0.0128 0.8568
Panel B
Coefficient Adj. R2 N

Eq. 2: CI2008 = /1 ? /2PBT2006 ? /3PBT2007 ? mi,j

5.0628 -0.5881 2.9820c 0.0465 98
t value 0.5414 -0.4662 1.7550
p value 0.5896 0.6423 0.0829
Eq. 3: DI2008 = /1 ? /2PBT2006 ? /3PBT2007 ? mi,j
1.4195 -0.1720 2.9143 0.0312 98
t value 0.1518 -0.0322 1.2463
p value 0.8792 0.9342 0.2090
Eq. 4: EI2008 = /1 ? /2PBT2006 ? /3PBT2007 ? mi,j
4.4732 0.3441 3.4869 0.0342 98
t value 0.3914 0.1553 1.5436
p value 0.6964 0.8769 0.1265
Eq. 5: ETI2008 = /1 ? /2PBT2006 ? /3PBT2007 ? mi,j
3.4620 -2.4832c 4.4405a 0.0243 98
t value 0.4439 -1.8420 3.0712
p value 0.6652 0.0690 0.0020
a b c
1% significance, 5% significance, 10% significance

size and time period chosen for this study, overall these
results provides reasonable evidence that, there is bi-
directional relationship between corporate sustainability
practices and corporate financial performance.
Despite debates on the worthiness of investing a cor-
poration’s resources to become ‘more responsible’ in the
eyes of the stakeholders, the findings indicate that these
strategies have been proven as in the interests of the cor-
poration and therefore, ultimately in the best interests of
shareholders, the legal owners. The assessment of the
social impact of companies is a complex task; in this paper
we have mainly assessed corporate philanthropy and a
small number of diversity issues. These practices constitute
much of CSR activities these days and it is difficult to
ascertain, from ethno-centric point of view, what is an ideal
and/or optimal corporate social commitment? Thus, we
propose that future research should develop ‘other’ per-
formance indicators based on the multiple community
perspectives to evaluate the impact of sustainable practices
for for-profit organizations. A major limitation of our study
is that we focused only on the top 100 global sustain-
able companies which are mostly from the developed
economies; we argue that future research should endeavor
to ascertain the influence of external and internal factors on
the companies’ progress toward sustainable development in
developing economies. Similarly, future research should
investigate how not-for-profit organizations perceive sus-
tainable development, what methods are suitable to
investigate the sustainable practices of such organizations,
and most importantly, how these organizations are evalu-
ated since their performance indicators tend differ from
those used in for-profit organizations.
Acknowledgments We are thankful to Research Management
Institute, University Teknologi Mara for the research grant for this
paper.
Appendix 1: Items in the Checklist
Community Index (CI)
1 Does the company have a charitable foundation and if
so, how much was given during the most recent fiscal
year?

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Sustainability Practices and Corporate Financial Performance
2 Does the company have exceptional or particularly
innovative charitable-giving programs?
3 Is the company an industry leader with respect to its
performance in Community activism?
4 Does the company have exceptional volunteer
programs?
5 Is there evidence of new initiatives implemented by or
awards given to the company with respect to its
performance in this category?
6 What community programs does the company have in
place?
7 Does the company have employee volunteer programs?
8 Do the company’s volunteer programs involve a large
portion of the company’s current and former
workforce?
9 Does the company participate in public/private part-
nerships related to education, job training, or urban
revitalization and if so, what is the nature of the
company’s commitment to them?
10 Does the company have partnerships with local
schools or community-based groups?
11 Does the company have a corporate giving program
and if so, how much was given during the most recent
fiscal year?
12 Is the company committed to donating a given
percentage of its pretax profits to charitable organi-
zations and if so, what percentage is the target goal?
Diversity Index (DI)
1 Has the company demonstrated a commitment to
workforce diversity?
2 Does the company actively hire and promote minority
and women?
3 Has the company demonstrated its commitment to
diversity through strong representation of women,
minorities, and the disabled on boards of directors, in
top management, and/or among the company’s high-
est paid employees?
4 Has the company demonstrated its commitment to
diversity through its training and advancement pro-
grams (e.g., support networks, management reviews,
mentoring)?
5 Has the company demonstrated its commitment to
diversity through participation in women and minority
vendor and banking programs?
6 Has the company demonstrated its commitment to
diversity through implementation of innovative work/
life programs (e.g., flextime, job sharing, child care,
elder care)?
7 Does the company have programs to train woman for
advancement?
75
8 Does the company conduct diversity training for its
employees?
9 Does the company have a history of violations in the
area of abusive labor conditions?
10 Does the company have a poor Equal Employment
Opportunity Commission (EEOC) record?
11 Does the company’s record in this area show a
systematic or repeated disregard for the need to foster
an open and diverse work environment?
12 Does the company have affirmative action programs
pertaining to recruitment and promotion?
13 Does the company, at a minimum, have in place
specifically stated policies against discrimination in
hiring and promotion based upon sexual orientation?
14 Does the company have a set of standards for its
overseas operations and non-U.S. contractors and
suppliers?
15 Does the company have a board or staff task force or
committee set up to address diversity-related issues?
16 Does the company clearly exclude women from
positions in operating top management?
17 Does the company have women and minorities
serving in positions with substantial profit and loss
responsibilities?
18 Does the company have gender equity in wages?
19 How does the company portray woman in advertising
and marketing materials?
20 What is the nature and extent of any civil discrimi-
nation lawsuits brought against the company?
21 Does the company have an understanding of the need
for minority constituencies to have more of a voice in
business?
Environment Index (EI)
1 Is the company in compliance with environmental
laws and regulations?
2 What civil lawsuits, particularly those covering over-
seas issues, has the company been subject to, with
respect to its environmental performance in the past 3
years?
3 What assets have the company accrues for pollution
remediation?
4 Does the company have environmental remediation
liabilities?
5 Does the company have current substantial liabilities
for the remediation of asbestos?
6 Is the company dedicated to the conservation of
energy and natural resources, with emphasis on the
impact of operations on the local community?
7 Is the company proactive in its environmental
efforts?
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76 R. Ameer, R. Othman

8 Has the company demonstrated a commitment to 5 Does the code include corporate policies dealing with
change, with respect to its environmental perfor- business conduct specifically related to commercial
mance? bribery?
9 Has the company developed new products and/or 6 Does the code include corporate policies dealing with
processes that will reduce or minimize environmental business conduct specifically related to international
impact? business relationships?
10 Has the company adopted new technologies and/or 7 Does the code include corporate policies dealing with
redesigned products to conserve the use of energy, business conduct specifically related to use and public
water, materials, and/or land? disclosure of inside info, and the use of confidential
11 Is the company involved with the new development or and proprietary information?
use of clean energy, sustainable renewable energy, or 8 Does the code include corporate policies dealing with
natural foods? business conduct specifically related to export com-
12 Is the company perceived as an industry leader, with pliance and international economic sanctions?
respect to its performance in this category? 9 Does the code include corporate policies dealing with
13 What is the effectiveness of the company’s environ- business conduct specifically related to political
mental policies; specifically, are the company’s contributions?
established programs and/or goals actually improving 10 Does the code include corporate policies dealing with
its environmental performance? business conduct specifically related to antitrust and
14 Has the company taken positive steps toward pre- competition laws?
serving our environment? 11 Does the code include corporate policies dealing with
15 Does the company have environmental policies in business conduct specifically related to health, safety,
effect with measurable goals, companywide responsi- and environment?
bility, and quantitative accountability? 12 Does the code include corporate policies dealing with
16 Does the company have voluntary programs in place, business conduct specifically related to harassment?
including recycling? 13 Has the company, its executives, managers, and
17 Does the company have specific environmental pol- employees consistently operated within the frame-
icies and if so, what are they? work provided by the Code of Business Conduct in the
18 What are the company’s major policies to prevent air past 3 years?
and water pollution?
19 Does the company have an environmental report,
including quantitative data on emissions/pollution?
Appendix 2: CSR Rating Agencies/Organization
What are the company’s levels of emission? What are
the company’s levels of environment data, e.g., TRI,
spills, etc.?
20 What are the company’s recycling efforts? S. no. Agency/Organization name Country
21 Are all company operations (including those abroad)
in compliance with environmental statutes? 1 Accountability Rating UK
22 What is the nature and amount of EPA violations and 2 Allianz Global Investors Germany/UK/France
fines paid? 3 Analistas Internacionales Spain
en Sostenibildad SA
4 Arese France
Ethical Index (ETI) 5 ASSET4 Switzerland
6 Avanzi SRI Research Italy
1 Does the co. have a written Code of Business Conduct 7 Bank Sarasin Co Ltd Switzerland
used as a guide to help employees live up to the 8 BHF-Bank AG Germany
company’s ethical standards? 9 Business Ethics USA
2 Does the code go beyond the legal minimums?
10 Business in the Community UK
3 Does the code include corporate policies dealing with (BITC)
business conduct specifically related to Equal 11 Calvert Group Ltd USA
Employment Opportunity? 12 Centre for Australian Ethical Australia
4 Does the code include corporate policies dealing with Research (CAER)
business conduct specifically related to conflicts of 13 Centre Info SA Switzerland
interest?

123
Sustainability Practices and Corporate Financial Performance 77

Appendix 2 conitnued Appendix 2 conitnued

S. no. Agency/Organization name Country S. no. Agency/Organization name Country

14 Citizens Advisers Inc USA 50 Pictet & Cie Switzerland

15 Co-op America USA 51 PIRIC UK
16 CoreRatings Ltd UK 52 Repu Tax Australia
17 Corporate Knights Canada 53 Safety & Environmental Risk UK
18 Corporate Monitor Australia Management (SERM)
19 Covalence SA Switzerland 54 Scoris GmBH Germany
20 Danish Governments Denmark 55 SiRi Company Switzerland
Pricewaterhouse Coopers 56 STOCK at STAKE Belgium
21 Dutch Sustainability Research The Netherlands 57 Sustainable Asset Management Switzerland
BV (DSR) (SAM) Group Holding AG
22 E.Capital Partners SPA Italy 58 Sustainable Investment Australia
23 Ecos Switzerland Research Institute (SIRIS)
Pty
24 Ethibel Belgium
59 Triodos The Netherlands
25 Ethical & Environmental UK
Screening Service (ESS) 60 UBS (Union Bank of Switzerland
Switzerland)
26 Ethical Consumer Research UK
Association (ECRA) 61 Verite USA
27 EthicFinance France 62 Vigeo France
28 Ethiscan Canada Ltd Canada 63 Vonix Austria
29 Foundation Ecologisy Spain 64 Westpac Investment Australia
Desarollo (EcoDes) Management Corporation
30 FTSE Group UK 65 Zurcher Kantonalbank Switzerland
31 Global Ethical Standard Sweden
Investment Services AB
(GES)
32 Global Risk Management UK
Services (GRM)
Appendix 3: Item-by-Item Analysis
33 Goldman Sachs Corporation USA
34 Imug Germany Community Index (CI)
35 Imug/SECURVITA Germany
36 Innovest Group USA
Items Mean Std. N
37 Inrate Switzerland deviation
38 Institutional Shareholder USA
Services (ISS) 11. Corporate giving program and amount 3.10 1.51 98
39 Jantzi Research Inc Canada given
40 Johannesburg Securities South Africa 10. Partnership with local Schools or 3.05 1.56 98
Exchange community-based groups
41 KAYMEA Investment Israel 9. Public/private partnership 2.99 1.62 98
Research & Analysis 6. Community programs 2.85 1.58 98
42 Kempen Capital Management/ UK/The Netherlands 7. Employee volunteer program 2.56 1.72 98
SNS Bank 2. Exceptional and innovative charitable- 2.39 1.58 98
43 Kynder Lydenberg & Domini UK giving programs
(KLD) Research & Analytics 8. Current and former workforce 2.14 1.72 98
44 Lombard Odier Darier Hentsch Switzerland volunteering (in percent)
& Chie 4. Exceptional volunteer program 1.92 1.61 98
45 MAALA Israel 1. Contribution to charitable foundations 1.52 1.82 98
46 Name of the agency/ Country 3. Performance in community activism 1.42 1.72 98
organization
5. New initiative and awards received 1.31 1.82 98
47 Network for Social Switzerland
12. Commitment to donating 0.51 1.32 98
Responsibility Economy
48 O.D.E. France Note: 12 items were used to assess companies’ disclosure related to
community. The companies scored the highest for item 11. The
49 Oekom Research AG Germany
companies scored the lowest on item 12

123
78 R. Ameer, R. Othman

Diversity Index (DI) Items Mean Std. deviation N

7. Use of confidential and proprietary 1.31 1.58 98

Items Mean Std. N information
deviation 8. Export compliance and international 1.28 1.66 98
economic sanctions
1. Commitment to workforce diversity 2.74 1.68 98
9. Political contributions 1.15 1.49 98
12. Recruitment and promotion 2.50 1.77 98
10. Antitrust and competition laws 1.07 1.44 98
2. Hiring and promoting minority and 2.41 1.75 98
women 11. Health, safety and environment 1.01 1.48 98
14. Standards for overseas operations 2.13 1.88 98 12. Harassment 0.77 1.09 98
6. Implementation of innovative work/life 1.91 1.88 98 13. Operated within framework 0.6 0.88 98
programs of code of business conduct
3. Representation of women and minorities 1.83 1.86 98 Note: 13 items were used assess companies’ disclosure related to
13. Discrimination in hiring and promotion 1.48 1.85 98 ethical practices. The companies scored the highest for item 1 and the
lowest mean was for item 6
21. Minorities constituents to have more of a 1.39 1.34 98
voice
7. Women’s training for advancement 0.99 1.62 98
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