Sustainability Reporting and Firm Performance: A Thematic Empirical Review

Sustainability Reporting and Firm Performance: A Thematic Empirical Review

Nnedu, Stanley Chinonso

Accounting Department, Veritas University, Abuja, Nigeria

DOI: https://doi.org/10.51244/IJRSI.2024.11120079

Received: 19 December 2024; Accepted: 24 December 2024; Published: 22 January 2025

ABSTRACT

This study investigates the relationship between sustainability reporting and firm performance through a comprehensive thematic review, focusing on the economic, social, and environmental dimensions. Data was collected through a rigorous search of relevant academic literature published between 2018 and 2024. Employing content analysis, the study synthesizes empirical findings across various sectors and regions. The analysis reveals that sustainability reporting can enhance financial performance by improving transparency, stakeholder trust, and operational efficiency. However, its impact is highly context-dependent. Economic reporting fosters investor confidence and reduces financing costs but may signal inefficiencies in emerging markets. Social reporting strengthens brand loyalty and stakeholder engagement but involves high implementation costs that could strain short-term financial outcomes. Environmental reporting is particularly effective in resource-intensive sectors, enhancing regulatory compliance and investor trust. The conclusions emphasize the need for tailored reporting strategies aligned with sectoral, regional, and stakeholder dynamics to maximize benefits and mitigate risks. Recommendations include integrating sustainability practices into core business strategies to drive long-term value creation and adopting sector-specific approaches to balance profitability with societal expectations. Future research should explore moderating variables such as governance quality, industry sensitivity, and stakeholder pressure to deepen understanding of how sustainability reporting influences financial outcomes. This study advances knowledge on sustainability reporting as a strategic tool for corporate success and offers actionable insights for businesses, policymakers, and researchers.

Keywords: Sustainability Reporting, Firm Performance, Economic Sustainability, Social Sustainability, Environmental Sustainability.

INTRODUCTION

In today’s globalized and environmentally conscious business landscape, the evaluation of firm performance has evolved beyond traditional financial metrics such as profitability, sales volume, and market share. Increasingly, there is an emphasis on sustainable corporate management practices as benchmarks for success (Eccles et al., 2014; Hahn & Kühnen, 2013). Traditional measures fail to capture the broader impacts of corporate activities on society and the environment, necessitating a shift toward frameworks that integrate environmental, social, and governance (ESG) considerations into organizational strategies. ESG integration has emerged as a pivotal determinant of corporate responsibility, resilience, and long-term success (Elkington, 1997; Eccles et al., 2014).

Sustainability reporting, which provides a structured framework for disclosing ESG practices, has become an indispensable tool for ensuring corporate transparency, accountability, and alignment with societal goals (Gray et al., 1996; GRI, 2023). By communicating their economic, social, and environmental impacts, firms enhance their legitimacy and build trust among stakeholders, including investors, regulators, employees, and customers (Freeman, 1984). Moreover, this practice aligns corporate activities with global sustainability objectives, such as the United Nations Sustainable Development Goals (SDGs), positioning firms for long-term competitiveness and adaptability in dynamic markets (Porter & Kramer, 2011).

From the perspective of firm performance, sustainability reporting has significant implications across financial, operational, and reputational dimensions. Financially, firms with robust ESG practices often report enhanced profitability, reduced risks, and improved access to capital, reflecting investors’ growing preference for sustainable operations (Porter & Kramer, 2011; Masila et al., 2024). Operationally, sustainability fosters resource optimization and innovation, enabling firms to address environmental challenges while maintaining efficiency and agility (Freeman et al., 2020). Reputationally, sustainability practices strengthen stakeholder trust, bolster brand loyalty, and improve employee satisfaction, collectively contributing to competitive advantage (Clarkson et al., 2011; Miralles-Quirós et al., 2019).

Despite these potential advantages, the relationship between sustainability reporting and firm performance remains complex and context-dependent. Empirical findings vary widely. While some studies highlight positive outcomes such as improved reputation, heightened investor confidence, and long-term strategic gains (Masila et al., 2024; Shaban & Barakat, 2023), others emphasize challenges, including the high costs of implementing sustainability frameworks, compliance with diverse regulatory requirements, and strains on short-term profitability (Etim et al., 2023; Putri-Amrigan et al., 2023). Additionally, the absence of a standardized framework for evaluating sustainability’s influence on firm performance exacerbates inconsistencies across industries and regions (Hahn & Kühnen, 2013).

Recognizing these gaps, this study employs content analysis to conduct a thematic empirical review of the relationship between sustainability reporting and firm performance. Content analysis enables the systematic evaluation of qualitative and quantitative data, providing a nuanced understanding of sustainability practices and their implications. By synthesizing insights from existing research, this study elucidates the conditions under which sustainability practices contribute to financial, operational, and reputational success. It also identifies critical gaps for future inquiry, advancing the understanding of sustainability as a core driver of corporate performance and global sustainability objectives. Ultimately, this research highlights the pivotal role of sustainability reporting in fostering long-term business success and societal progress.

 CONCEPTUAL REVIEW

 Sustainability Reporting: Sustainability reporting is a crucial mechanism through which organizations disclose their performance across economic, environmental, and social dimensions. Initially rooted in environmental reporting, this practice has expanded to encompass a broader spectrum of sustainability issues, reflecting the growing recognition of the interconnectedness between business operations and global sustainability challenges. The core principle underpinning sustainability reporting is the concept of sustainable development, which emphasizes meeting the needs of the present generation without compromising the ability of future generations to meet their own needs (Brundtland, 1987). This practice is essential for fostering transparency, accountability, and informed decision-making among stakeholders, including investors, customers, employees, and regulators.

The evolution of sustainability reporting has been significantly influenced by frameworks such as the Global Reporting Initiative (GRI), which provides guidelines for organizations to assess and communicate their sustainability performance (GRI, 2023). These frameworks aim to standardize reporting practices, enhancing consistency and comparability across different organizations. By adopting such frameworks, companies can better align their reporting with global sustainability standards, thereby improving stakeholder trust and demonstrating their commitment to responsible business practices. The transparency facilitated by sustainability reporting not only aids stakeholders in making informed decisions but also encourages organizations to integrate sustainable practices into their core strategies, ultimately contributing to long-term business success and the broader goal of sustainable development (Eccles et al., 2019).

Economic Sustainability Reporting: Economic sustainability reporting focuses on an organization’s financial performance and its capacity for long-term operational viability. This dimension underscores the importance of balancing profit generation with ethical practices and efficient resource management to ensure sustainable economic growth (Eccles et al., 2019). Economic sustainability reports typically include detailed information on financial health, such as revenue, profitability, and cost management, as well as the economic value created for various stakeholders. These reports also highlight the company’s contributions to the broader economy, including job creation, community investments, and infrastructure development (Porter & Kramer, 2011).

Beyond financial metrics, economic sustainability reporting addresses how companies manage risks and opportunities related to sustainability. This includes adapting to evolving market conditions, regulatory requirements, and consumer expectations (Kaplan & Norton, 2020). Companies may report on their efforts to innovate and develop sustainable products and services that support long-term economic growth. By providing transparency in these areas, economic sustainability reporting helps stakeholders understand a company’s commitment to economic resilience and its role in fostering a sustainable economy.

Social Sustainability Reporting: Social sustainability reporting centers on the impact of an organization’s operations on society, including issues related to human rights, labour practices, community engagement, and social equity. Companies that emphasize social sustainability aim to create positive social outcomes while minimizing adverse impacts on people and communities (Freeman, 1984). Reporting in this dimension typically covers topics such as employee welfare, diversity and inclusion, fair labour practices, health and safety, and community development initiatives (Carroll, 1991).

In addition to internal practices, social sustainability reporting often highlights a company’s interactions with external stakeholders, such as customers, suppliers, and local communities. This may involve reporting on efforts to ensure responsible sourcing, ethical supply chains, and the promotion of social justice. By disclosing information on social sustainability, companies demonstrate their commitment to societal well-being and their responsibility toward the communities affected by their operations. This transparency not only builds trust with stakeholders but also supports the company’s social license to operate (Elkington, 1997).

Environmental Sustainability Reporting: Environmental sustainability reporting focuses on a company’s impact on the natural environment, including resource management, waste reduction, and carbon footprint minimization. This dimension addresses key environmental issues such as energy consumption, greenhouse gas emissions, water usage, waste management, and biodiversity conservation (Hart, 1995). Companies committed to environmental sustainability aim to reduce their negative environmental impacts while promoting practices that protect and preserve natural resources for future generations (Dyllick & Hockerts, 2002).

Environmental sustainability reports often include detailed information on a company’s environmental policies, goals, and performance metrics. This may involve reporting on initiatives to improve energy efficiency, reduce emissions, implement sustainable sourcing, and invest in renewable energy. Additionally, companies may disclose their efforts to comply with environmental regulations and contribute to global environmental goals, such as the United Nations Sustainable Development Goals (SDGs). By being transparent about their environmental impact, companies can demonstrate their commitment to environmental stewardship and their role in addressing global environmental challenges (Bansal & DesJardine, 2014).

Firm Performance: Firm performance is a multidimensional construct that encompasses various metrics used to evaluate a company’s overall effectiveness and success. At its core, firm performance typically involves assessing financial outcomes such as profitability, revenue growth, and return on investment. Traditional financial performance indicators include Return on Assets (ROA), Return on Equity (ROE), and earnings per share (EPS), which provide insights into how well a company utilizes its assets to generate profit and deliver value to shareholders. For example, ROA measures how efficiently a company uses its assets to produce earnings, while ROE assesses the profitability relative to shareholders’ equity (Higgins, 2012). These metrics are essential for investors and stakeholders to gauge the financial health and operational efficiency of a firm.

Beyond financial metrics, firm performance also encompasses operational and strategic dimensions. Operational performance focuses on internal processes and efficiency, such as production costs, inventory turnover, and quality control. These metrics help assess how well a company manages its resources and processes to deliver products or services efficiently and effectively. Strategic performance measures, on the other hand, evaluate a company’s success in achieving its long-term objectives and competitive positioning. Metrics such as market share, strategic alignment, and innovation capability are crucial for understanding how well a firm adapts to market changes and maintains its competitive edge (Kaplan & Norton, 1996). Effective strategic management ensures that a company can achieve its growth targets and sustain a competitive advantage over time.

Theoretical Framework

Stakeholder Theory, first articulated by Edward Freeman in 1984, posits that organizations have obligations not only to their shareholders but also to other parties affected by their operations. This includes employees, customers, suppliers, communities, and the environment. The theory challenges the traditional shareholder-centric view by emphasizing that the interests of all stakeholders should be considered in corporate decision-making processes. According to Freeman, firms must create value for all stakeholders to achieve long-term success and sustainability. This approach integrates ethical considerations into business practices, advocating for a balanced consideration of various stakeholder needs and concerns (Freeman, 1984).

The adoption of Stakeholder Theory in the structural and thematic review of relevant literature on sustainability reporting and firm performance is highly justified. Firstly, sustainability reporting is inherently aligned with stakeholder interests, as it involves disclosing information on economic, social, and environmental impacts that affect various stakeholder groups. By focusing on these dimensions, organizations can provide a comprehensive view of their performance and address stakeholder concerns about sustainability practices. Stakeholder Theory supports the notion that effective sustainability reporting enhances transparency and accountability, ultimately contributing to better stakeholder relations and organizational reputation (Donaldson & Preston, 1995). This alignment underscores the relevance of Stakeholder Theory in evaluating how firms manage their sustainability impacts and engage with stakeholders.

Secondly, in the context of firm performance, Stakeholder Theory offers a broader perspective beyond traditional financial metrics. It highlights the importance of non-financial performance indicators, such as environmental stewardship, social responsibility, and governance practices. Empirical research has shown that firms with strong stakeholder engagement and sustainability practices tend to experience enhanced long-term financial performance and reduced risk (Eccles et al., 2014). By integrating Stakeholder Theory into the analysis of firm performance, researchers can better understand how firms’ sustainability efforts influence their overall success and stakeholder relationships. This approach facilitates a more holistic evaluation of performance, incorporating both financial and non-financial factors, and provides insights into how stakeholder interests impact corporate strategies and outcomes.

Empirical Review

The relationship between sustainability reporting and financial performance has been the subject of extensive empirical investigation, with scholars exploring this dynamic across various sectors and geographic regions. This body of research employs diverse methodologies, producing a range of findings that reflect the complexity of linking corporate sustainability practices to financial outcomes. The empirical literature reveals a multifaceted and context-dependent relationship, where industry-specific factors, regional contexts, and the particular dimensions of sustainability reporting play crucial roles in determining financial performance.

Masila et al. (2024) provide a seminal contribution by examining firms listed on the Nairobi Securities Exchange, utilizing the Global Reporting Initiative (GRI) framework to assess sustainability reporting across governance, social, environmental, and economic dimensions. Their findings underscore the positive cumulative influence of these dimensions on financial performance, as measured by return on assets (ROA). This suggests that compulsory sustainability reporting could serve as a catalyst for enhancing corporate financial performance, particularly in emerging markets such as Kenya, where regulatory frameworks and market dynamics differ significantly from those in more developed economies. The study by Shaban and Barakat (2023) complements this perspective, demonstrating a strong positive relationship between sustainability disclosures and financial performance in Jordanian banks, particularly in terms of ROA and financial leverage. These findings collectively reinforce the view that sustainability practices are not only beneficial but may be essential for firms in the financial sector, particularly in regions with growing awareness of and demand for responsible business practices.

Contrasting these findings, Adebayo, Omonuk, and Ojuola (2024) offer a critical perspective from the Nigerian context, particularly within the agriculture and natural resource sectors. Their panel regression analysis reveals that sustainability reporting, especially in the economic and social dimensions, does not have a statistically significant impact on financial performance. This challenges the prevailing assumption that sustainability reporting uniformly enhances financial outcomes across sectors, suggesting that the relationship is mediated by sector-specific factors. The study underscores the necessity of considering the unique characteristics of each industry when evaluating the efficacy of sustainability reporting. Similarly, Etim et al. (2023) highlight the nuanced impact of sustainability reporting within the Nigerian healthcare sector, where environmental reporting was found to negatively impact financial performance, and social reporting, while statistically significant, exhibited a negative effect. These findings suggest that in certain industries, sustainability practices may not always align with immediate financial goals, potentially due to the unique operational challenges and market expectations within these sectors.

In the oil and gas sector, studies by Muhammad, Abubakar, and Jamilu (2023) and Imo (2023) offer insights into how different dimensions of sustainability reporting affect financial performance in Nigeria. Muhammad et al. (2023) find that economic performance disclosure has a significant positive influence on financial outcomes, while environmental and social disclosures do not exhibit a similar impact. Imo (2023) further supports these findings by demonstrating a positive and significant influence of sustainability reporting on financial performance across multiple metrics in quoted oil and gas companies. These studies suggest that the financial benefits derived from sustainability reporting may be contingent upon the type of disclosure, with economic aspects being more directly linked to financial performance. This sector-specific insight highlights the importance of tailoring sustainability strategies to the particular economic realities and expectations of the industry in question.

The manufacturing sector presents another important context for understanding the impact of sustainability reporting. Research by Iliemena, Ijeoma, and Uagbale-Ekatah (2023) on Nigerian manufacturing firms reveals that all dimensions of sustainability reporting positively influence economic value added, with economic and social reporting showing statistically significant effects. These findings suggest that sustainability practices can significantly contribute to long-term value creation in the manufacturing sector, supporting the integration of sustainability into core business strategies. Gogo, Uwikor, and Nnah (2023) corroborate this view by demonstrating that sustainability reporting enhances financial performance in Nigerian manufacturing companies through mechanisms such as improved value creation, brand reputation, and risk management. These studies collectively indicate that in the manufacturing sector, sustainability reporting not only aligns with financial goals but may also serve as a key driver of competitive advantage and long-term growth.

Expanding beyond the Nigerian context, Putri-Amrigan, Hamidi, and Adrianto (2023) examine companies rated on the ASEAN Corporate Governance Scorecard (ASRRAT) in Indonesia. Their findings reveal that while economic disclosure negatively affects financial performance, social disclosure has a positive and significant effect. The use of Tobin’s Q as a measure of financial performance provides a market-based perspective, emphasizing the importance of social sustainability in enhancing firm value from an investor’s viewpoint. This is echoed by Akhmad and Andajani (2023), who explore the persistence of financial performance in Indonesian firms. Their study finds that high engagement in corporate social responsibility (CSR) activities, particularly in economic, social, and environmental domains, significantly enhances the sustainability of financial performance. This underscores the critical role of CSR in maintaining long-term financial health and aligns with broader global trends emphasizing the strategic integration of sustainability into business practices.

In Europe, Buallay (2019) investigates the relationship between environmental, social, and governance (ESG) disclosures and the performance of European Union banks. The study finds that environmental disclosures positively influence both operational and market performance, while social and governance disclosures present a more complex impact. Specifically, social responsibility disclosures negatively affect all performance measures, while governance disclosures exhibit mixed effects. These results highlight the nuanced and sometimes contradictory nature of the relationship between different ESG components and financial performance, suggesting that the impact of sustainability reporting may vary significantly based on the specific context and nature of the disclosures. This complexity is further illustrated by Johari (2019) in Malaysia, where sustainability reporting is positively associated with firm performance, particularly in terms of ROA and earnings per share. Johari’s findings suggest that, even in diverse regional contexts, sustainability practices can contribute significantly to corporate success, echoing similar findings from other parts of the world.

Zamil and Hassan (2019) provide additional insights by assessing the impact of environmental reporting on financial performance among Fortune 500 firms. Their focus on specific environmental indicators, such as greenhouse gas emissions, waste reduction, and water consumption, reveals that reductions in greenhouse gas emissions and water usage positively impact financial performance, while waste reduction has a negative impact. These findings suggest that not all environmental initiatives are equally beneficial to financial outcomes, and that firms must carefully consider which environmental strategies align best with their financial goals. Similarly, Rachmawati, Agustia, and Soewarno (2018) explore the relationship between environmental performance, disclosure, public visibility, and economic performance in Indonesian companies. They find that while environmental performance positively affects economic outcomes, environmental disclosure and public visibility may have a negative impact, underscoring the complex interplay between how environmental practices are perceived and their actual impact on financial performance.

Finally, the broader perspective on voluntary sustainability reporting in Africa is provided by Isiaka (2023), who finds a positive correlation between sustainability disclosures and financial performance, despite the lack of significant improvements in reporting practices over time. This study highlights the potential benefits of sustainability reporting even in regions where such practices are still developing, emphasizing the role of transparency and accountability in fostering positive financial outcomes.

METHODOLOGY

This study adopts a content analysis methodology to systematically examine empirical studies investigating the relationship between sustainability reporting and firm performance. Data was collected through a rigorous search of relevant academic literature from 2018 to 2024, guided by the use of targeted keywords such as “sustainability reporting” and “financial performance.” The inclusion criteria focused on empirical studies published within this period, emphasizing methodological rigor and relevance to the study objectives, while non-empirical works and articles lacking clear methodologies were excluded. Findings were categorized into the economic, social, and environmental dimensions of sustainability reporting, with a focus on their influence on financial performance metrics such as return on assets (ROA), return on equity (ROE), and Tobin’s Q. The content analysis approach enabled a synthesis of diverse perspectives, offering a comprehensive understanding of how sustainability practices affect firm performance across varying sectors and contexts.

ANALYSIS OF FINDINGS

The analysis of findings provides a synthesis of empirical evidence on the relationship between sustainability reporting and financial performance. This section explores the various methodologies and frameworks employed by researchers to study this relationship and categorizes the findings based on key sustainability reporting dimensions: economic, social, and environmental. By examining patterns across sectors, regions, and industries, the analysis highlights both the positive and negative impacts of sustainability disclosures, offering insights into their implications for firms’ financial outcomes.

Methodologies and Frameworks Used: Empirical studies exploring the relationship between sustainability reporting and financial performance have employed various methodologies and frameworks. These approaches enable researchers to examine the complexities of sustainability disclosures and their influence on firm performance indicators.

1. Regression Analysis: Studies such as Masila et al. (2024) and Etim et al. (2023) used regression analysis based on frameworks like the Global Reporting Initiative (GRI) to examine how various sustainability scores impact financial performance.
2. Panel Data Analysis: Techniques such as panel least squares regression and ordinary least squares regression are employed to understand longitudinal effects. Adebayo, Omonuk, and Ojuola (2024) and Gogo, Uwikor, and Nnah (2023) highlight the complex relationships between sustainability reporting dimensions and financial performance indicators like Return on Assets (ROA) and Return on Equity (ROE).
3. iii. Content Analysis: Muhammad, Abubakar, and Jamilu (2023) and Imo (2023) utilized content analysis of annual reports to assess how different sustainability disclosures; economic, social, and environmental affect financial performance.
4. Descriptive Research Design: Agutu and Githira (2023) combined descriptive and inferential statistics to explore the positive impacts of social, economic, and environmental disclosures on the financial performance of firms listed on the Nairobi Securities Exchange.
5. Composite Index and Stakeholder Theory: Ebaid (2023) and Asha and Amiya (2023) employed composite index approaches and frameworks like Stakeholder Theory to assess sustainability reporting across various dimensions.

Dimensions of Sustainability Reporting: The findings are categorized according to the key dimensions of sustainability reporting: economic, social, and environment

 Economic Sustainability Reporting Findings:

1. Positive Impacts: Several studies indicate that economic sustainability reporting can positively impact financial performance. For example, Iliemena, Ijeoma, and Uagbale-Ekatah (2023) found that Nigerian manufacturing firms that disclosed detailed economic information experienced significant improvements in economic value addition. Similarly, Miralles-Quirós et al. (2019) observed that firms in Europe with robust economic disclosures often enjoyed enhanced financial performance, particularly those with a strong market presence and economic influence. The authors argue that transparent economic reporting helps build investor confidence, leading to better access to capital and lower costs of financing.
2. Negative Impacts: Conversely, other research highlights potential downsides to economic sustainability reporting. Putri-Amrigan, Hamidi, and Adrianto (2023) reported a negative relationship between economic disclosures and financial performance in Indonesian firms, particularly where market participants perceived extensive economic disclosures as signalling inefficiencies or underlying financial risks. This suggests that in certain contexts, especially in emerging markets, overemphasis on economic sustainability could be interpreted as a lack of focus on core operational efficiency.
3. Mixed Effects in Various Contexts: The impact of economic sustainability reporting can also vary across industries and regions. For instance, Byun et al. (2021) conducted a study across multiple sectors in South Korea and found that while economic sustainability reporting positively influenced financial performance in the technology sector, it had negligible or even negative effects in the agricultural sector. The authors suggest that the relevance of economic sustainability disclosures is highly context-dependent, influenced by industry characteristics, competitive dynamics, and regional economic conditions.
4. Sector-Specific Variations: Sectoral differences are critical in understanding the relationship between economic sustainability reporting and financial performance. Gogo, Uwikor, and Nnah (2023) found that in Nigerian manufacturing companies, economic sustainability reporting was a significant predictor of financial performance metrics like Return on Assets (ROA) and Return on Equity (ROE). However, the same study found no significant relationship in the agricultural sector, indicating that the effectiveness of economic disclosures may depend on the nature of the industry and the specific economic challenges it faces.
5. Implications of findings: The mixed results across various studies suggest that while economic sustainability reporting can enhance financial performance, this relationship is not universal. It is contingent upon factors such as sector, regional regulations, and market dynamics. Companies should therefore tailor their economic sustainability disclosures to align with the expectations of stakeholders in their specific industry and region. Over-disclosure in areas where stakeholders are more concerned with operational efficiency than with broad economic impacts may backfire, leading to negative financial outcomes.

Social Sustainability Reporting Findings:

i. Positive Impacts: A significant body of literature supports the positive impact of social sustainability reporting on financial performance. For instance, Ogah, Lambe, and Aza (2024) found that in the Nigerian oil and gas sector, companies that actively disclosed their social sustainability efforts such as community development projects and employee welfare initiatives experienced a marked improvement in financial performance indicators like ROE. Similarly, Asha and Amiya (2023) reported that Indian-listed companies with strong social sustainability reporting enjoyed enhanced brand reputation and customer loyalty, which translated into better financial outcomes.

The positive relationship between social sustainability reporting and financial performance is often attributed to increased stakeholder engagement and trust. Ali et al. (2019) argue that when companies demonstrate a genuine commitment to social issues, they not only enhance their corporate image but also build stronger relationships with key stakeholders, including customers, employees, and investors, leading to improved financial metrics.

ii. Negative or Insignificant Impacts: However, the relationship is not always positive. Etim et al. (2023) observed that in Nigerian healthcare companies, social sustainability reporting negatively affected financial performance. The authors suggest that this may be due to the high costs associated with implementing and reporting on social initiatives, which do not always result in immediate financial returns. Additionally, Obamwonyi and Ugbogbo (2023) found that while social sustainability reporting positively influenced EBIT, it had negative effects on ROCE and gross profit after tax in certain sectors. This mixed outcome indicates that the benefits of social sustainability reporting may be more pronounced in the long term, while the short-term financial impact can be negative, especially if the costs of social initiatives are not carefully managed.

iii. Sector-Specific and Regional Variations: Sectoral and regional differences further complicate the relationship between social sustainability reporting and financial performance. Setó-Pamies and Papaoikonomou (2021) found that the effectiveness of social sustainability disclosure varies depending on the sector’s maturity regarding sustainability practices. In well-established industries with a history of social responsibility, such disclosures tend to be positively received and linked to better financial performance. In contrast, in newer or less mature industries, the financial benefits are less clear.

Regional studies also show diverse outcomes. Ebaid (2023), in his study of firms in Saudi Arabia, found that social sustainability reporting had an insignificant impact on financial performance, suggesting that cultural and regional factors play a crucial role in determining the effectiveness of social disclosures. Thayaraj and Karunarathne (2021) observed similar results in Sri Lanka, where social sustainability reporting was not a strong predictor of financial performance, highlighting the importance of aligning social sustainability practices with local cultural expectations.

iv. Implications of findings: The findings suggest that the impact of social sustainability reporting on financial performance is highly context-dependent. Companies should focus on specific social issues that align with stakeholder values and local expectations. For instance, firms in regions with strong community engagement practices may benefit from emphasizing social initiatives, while those in areas with different cultural norms may need to adopt a more targeted approach. Tailored social disclosures that resonate with key stakeholders can enhance corporate legitimacy and ultimately improve financial outcomes.

Environmental Sustainability Reporting Findings:

i. Positive Impacts: A substantial body of research supports the positive relationship between environmental sustainability reporting and financial performance. Masila et al. (2024) found that companies listed on the Nairobi Securities Exchange that provided detailed environmental disclosures saw significant improvements in financial performance. The study attributes this to enhanced investor confidence, as transparent environmental reporting signals a company’s commitment to managing environmental risks and achieving long-term sustainability.

This positive relationship is not limited to African markets. Frias-Aceituno et al. (2013) and López, Garcia, and Rodriguez (2007) found similar results in European firms, where extensive environmental reporting practices were associated with better financial performance. These studies suggest that companies that proactively manage their environmental impact are often better positioned to attract investment, reduce costs through improved efficiency, and enhance their corporate reputation.

ii. Negative or Insignificant Impacts: Not all studies, however, report positive outcomes. Etim et al. (2023) found that environmental disclosures had a negative and insignificant effect on the financial performance of healthcare companies in Nigeria. The authors suggest that in sectors where environmental risks are perceived as low, extensive environmental reporting may not contribute significantly to financial performance and may even be viewed as an unnecessary cost. Michelon, Boesso, and Kumar (2013) also noted that environmental disclosures could have neutral or negative effects if they are not aligned with a company’s overall strategic goals. This indicates that environmental reporting, while generally beneficial, must be carefully aligned with industry-specific and company-specific factors to yield positive financial outcomes.

iii. Sectoral Differences: The impact of environmental sustainability reporting can vary significantly across sectors. In the oil and gas industry, where environmental risks are particularly high, enhanced environmental reporting practices have been shown to correlate positively with financial outcomes. Ogah, Lambe, and Aza (2024) found that in the Nigerian oil and gas sector, companies that engaged in comprehensive environmental reporting experienced improved financial performance, particularly in terms of ROA and ROE. This is likely due to the high level of scrutiny these companies face from both regulators and the public, making transparent environmental reporting a critical factor in maintaining stakeholder trust and avoiding costly legal and regulatory penalties.

iv. Implications of findings: Environmental sustainability reporting tends to positively affect financial performance, especially in resource-intensive sectors like oil and gas, where environmental risks are a significant concern. Companies in these sectors should prioritize comprehensive and transparent environmental disclosures to build investor confidence and improve their market standing. However, firms in industries with lower environmental impact may need to adopt a more nuanced approach, focusing on environmental issues that are most relevant to their operations and stakeholders.

CONCLUSION

The relationship between sustainability reporting and firm performance is nuanced and context-dependent, as revealed by the findings. Empirical evidence demonstrates that while sustainability reporting can enhance financial performance, its effectiveness varies by sector, region, and the alignment of reporting practices with stakeholder expectations.

Economic sustainability reporting often boosts financial performance by increasing investor confidence and operational efficiency, as seen in sectors with significant economic influence. However, in emerging markets, over-disclosure may signal inefficiencies, potentially leading to adverse outcomes. Companies must tailor their economic disclosures to the priorities of their specific industries and stakeholders to maximize benefits and minimize risks.

Social sustainability reporting positively impacts financial performance by building trust, enhancing brand loyalty, and fostering stakeholder engagement. These benefits are evident in consumer-focused sectors and regions where community and employee welfare are prioritized. However, high implementation costs and sectoral or regional misalignment can lead to negative or insignificant financial outcomes. This underscores the need for a targeted approach that balances costs with stakeholder value creation.

Environmental sustainability reporting is most beneficial in resource-intensive sectors like oil and gas, where environmental risks are a critical concern. Comprehensive disclosures in such industries not only meet regulatory demands but also improve financial performance by fostering investor confidence and mitigating legal risks. In sectors with lower environmental impact, the benefits of such reporting are less clear, highlighting the importance of aligning disclosures with stakeholder relevance and operational priorities.

The findings validate the principles of Stakeholder Theory, emphasizing that organizations thrive when they create value for all stakeholders. Firms in sectors with high stakeholder sensitivity must prioritize relevant sustainability disclosures, while those in less scrutinized industries should adopt reporting strategies that align with their unique stakeholder contexts to avoid negative financial and reputational consequences.

In conclusion, sustainability reporting is a strategic tool that, when effectively aligned with stakeholder priorities, bridges corporate profitability with societal progress. Firms leveraging tailored sustainability disclosures can achieve superior financial performance, build long-term resilience, and lead in sustainable business practices. However, achieving these outcomes requires a careful balance of stakeholder expectations, cost management, and strategic focus tailored to industry and regional dynamics.

RECOMMENDATIONS AND IMPLICATIONS FOR PRACTICE

1. Enhancing Corporate Transparency: The positive correlation between environmental sustainability reporting and financial performance suggests that firms, particularly in resource-intensive sectors, should prioritize environmental disclosures to improve investor confidence and corporate reputation.
2. Sector-Specific Reporting Strategies: Firms should adopt tailored sustainability reporting strategies based on industry-specific dynamics. For example, consumer goods companies might benefit more from enhancing social disclosures, while industrial firms should focus on environmental sustainability practices.
3. iii. Mandatory Sustainability Reporting: Policymakers and regulators should consider mandating sustainability reporting, especially environmental disclosures, across all sectors to ensure consistency, comparability, and better-informed investment decisions.
4. Focus on Long-Term Value Creation: Companies should integrate sustainability into their core business strategies, focusing on long-term value creation. Adopting sustainability metrics that contribute to innovation, cost reduction, and brand reputation will ultimately enhance profitability.

Future Research Directions

While this research has provided valuable insights into the relationship between sustainability reporting and financial performance, further studies are needed to explore the specific mechanisms driving these relationships. Future research should focus on cross-sectoral and cross-regional analyses to better understand the nuances of these relationships.

Additionally, it is recommended that future studies introduce moderating variables such as industry sensitivity to ESG issues. This variable captures the extent to which an industry is exposed to environmental, social, and governance pressures. For instance, resource-intensive industries such as oil and gas are more sensitive to sustainability practices than sectors like technology, potentially amplifying the financial impact of sustainability reporting.

Another useful moderating variable is corporate governance quality, which reflects the strength of a firm’s governance structures, including independent boards and effective risk management. Companies with robust governance are better positioned to implement sustainability initiatives effectively, thereby enhancing their financial outcomes.

Market share or competitive position is also a critical moderating variable, as it reflects a company’s dominance within its market. Firms with substantial market share may possess the resources to leverage sustainability efforts for greater financial returns, while smaller players might struggle to achieve similar benefits.

Moreover, stakeholder pressure intensity is relevant for understanding the influence of external expectations. Companies facing high stakeholder demands for transparency and accountability are more likely to see financial benefits from sustainability reporting compared to those operating in less scrutinized environments.

Finally, regulatory environment is an essential variable, as the stringency of sustainability-related regulations in a company’s operating region can either amplify or constrain the financial impacts of sustainability reporting. Companies in highly regulated environments might incur higher costs but gain long-term advantages through compliance and reputation building. Incorporating these moderating variables, alongside both qualitative and quantitative methods, can offer a more nuanced understanding of how sustainability reporting impacts financial performance. Such an approach would enable firms to better tailor their sustainability strategies to achieve optimal financial outcomes.

REFERENCES

1. Adebayo, O., Omonuk, O., & Ojuola, A. (2024). Sector-specific impacts of sustainability reporting on financial performance: Evidence from Nigerian agriculture and natural resource industries. Journal of Business and Economics, 12(1), 34–49.
2. Akhmad, F., & Andajani, M. (2023). Corporate social responsibility and the persistence of financial performance in Indonesian firms. Journal of Corporate Governance and Sustainability, 15(3), 78–92.
3. Ali, W., Frynas, J. G., & Mahmood, Z. (2019). Determinants of corporate social responsibility (CSR) disclosure in developed and developing countries: A literature review. Corporate Social Responsibility and Environmental Management, 26(2), 360–380. https://doi.org/10.1002/csr.1698
4. Asha, M., & Amiya, R. (2023). Stakeholder Theory and composite index approaches in sustainability reporting: Evidence from emerging markets. Journal of Corporate Sustainability Research, 7(4), 112–129.
5. Bansal, P., & DesJardine, M. R. (2014). Business sustainability: It is about time. Strategic Organization, 12(1), 70–78. https:// doi.org/10.1177/1476127013520265
6. Brundtland, G. H. (1987). Our common future: Report of the World Commission on Environment and Development. Oxford University Press.
7. Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149
8. Byun, H., Park, J., & Kim, S. (2021). Sector-specific impacts of economic sustainability reporting on financial performance in South Korea. Asian Business & Management, 20(3), 412–430. https://doi.org/10.1057/s41291-020-00140-8
9. Carroll, A. B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34(4), 39–48.
10. Dyllick, T., & Hockerts, K. (2002). Beyond the business case for corporate sustainability. Business Strategy and the Environment, 11(2), 130–141. https://doi.org/10.1002/bse.323
11. Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20(1), 65–91. https://doi.org/10.5465/amr.1995.9503271992
12. Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of a corporate culture of sustainability on corporate behavior and performance. Harvard Business School Working Paper, No. 12-035.
13. Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835–2857. https://doi.org/10.1287/mnsc.2014.1984
14. Eccles, R. G., Krzus, M. P., & Ribot, S. (2019). The integrated reporting movement: Meaning, momentum, motives, and materiality (2nd ed.). Wiley.
15. Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st-century business. Capstone Publishing.
16. Ebaid, A. (2023). The impact of social sustainability reporting on corporate performance in Saudi Arabia: A sectoral analysis. Middle Eastern Journal of Business Ethics, 12(2), 56–78.
17. Ebaid, I. E. (2023). The impact of sustainability reporting on firm performance: Evidence from Saudi Arabia. International Journal of Financial Studies, 12(1), 32–45.
18. Etim, P. E., Udoh, I. B., & Ekong, S. I. (2023). The impact of sustainability reporting on financial performance: Evidence from the Nigerian healthcare sector. African Journal of Corporate Finance, 6(2), 101–121.
19. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman Publishing.
20. Frias-Aceituno, J. V., Rodríguez-Ariza, L., & García-Sánchez, I. M. (2013). The role of the board in the dissemination of integrated corporate social reporting. Corporate Social Responsibility and Environmental Management, 20(4), 219–233. https:// doi.org/ 10.1002/csr.1294
21. Gogo, A. A., Uwikor, R. T., & Nnah, C. B. (2023). Sustainability reporting and value creation in the Nigerian manufacturing sector. Journal of Sustainable Business Practices, 10(2), 56–72.
22. Global Reporting Initiative (GRI). (2023). GRI standards. Retrieved from https://www.globalreporting.org
23. Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20(4), 986–1014.
24. Higgins, R. C. (2012). Analysis for financial management (10th ed.). McGraw-Hill Education.
25. Iliemena, E. U., Amedu, I. U., & Uagbale-Ekatah, R. E. (2023). Sustainability reporting and economic value added in Nigerian manufacturing firms. International Journal of Business and Finance Studies, 9(3), 45–62.
26. Iliemena, E. U., Ijeoma, N. B., & Uagbale-Ekatah, R. E. (2023). Impact of sustainability practices on value creation: Evidence from Nigerian manufacturing companies. Nigerian Journal of Corporate Sustainability, 7(1), 18–36.
27. Imo, C. U. (2023). Sustainability reporting and financial performance in Nigeria: A study of quoted oil and gas companies. Journal of Energy Economics and Policy, 13(1), 110–125.
28. Kaplan, R. S., & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review, 74(1), 75–85.
29. Kaplan, R. S., & Norton, D. P. (2020). The balanced scorecard: Translating strategy into action. Harvard Business Review Press.
30. López, M. V., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones Sustainability Index. Journal of Business Ethics, 75(3), 285–300. https://doi.org/10.1007/s10551-006-9253-8
31. Masila, J. K., Kamau, D., & Muturi, W. (2024). Environmental sustainability reporting and financial performance of firms listed on the Nairobi Securities Exchange. East African Journal of Business Studies, 10(1), 34–50.
32. Michelon, G., Boesso, G., & Kumar, K. (2013). Examining the link between strategic corporate social responsibility and company performance: An analysis of the best corporate citizens. Corporate Social Responsibility and Environmental Management, 20(2), 81–94. https://doi.org/10.1002/csr.1288
33. Miralles-Quirós, M. M., Miralles-Quirós, J. L., & Gonçalves, L. M. V. (2019). The role of sustainability performance in firm valuation: An international perspective. Journal of Business Ethics, 157(4), 871–903.
34. Ogah, C. O., Lambe, J. B., & Aza, R. A. (2024). Community development initiatives and financial performance: Social sustainability reporting in the Nigerian oil and gas sector. Journal of Corporate Governance & Sustainability, 9(1), 23–38.
35. Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62–77.
36. Putri-Amrigan, L., Hamidi, M., & Adrianto, W. (2023). Economic sustainability reporting and firm performance: Evidence from Indonesian firms. Journal of Business Ethics, 178(1), 121–135.
37. Rachmawati, H., Agustia, D., & Soewarno, N. (2018). Environmental performance, disclosure, public visibility, and economic performance in Indonesian companies. Journal of Environmental Economics, 23(4), 543–560.
38. Setó-Pamies, D., & Papaoikonomou, E. (2021). A multi-stakeholder perspective on social sustainability reporting and its implications for financial performance. Journal of Business Ethics, 171(3), 535–553. https://doi.org/10.1007/s10551-020-04491-y
39. Shaban, F., & Barakat, H. (2023). Sustainability disclosures and financial performance: Evidence from Jordanian banks. Middle Eastern Journal of Financial Studies, 11(3), 78–93.
40. Thayaraj, R., & Karunarathne, K. (2021). Social sustainability disclosures and financial performance: Evidence from Sri Lanka. South Asian Journal of Business Ethics, 13(2), 91–108.
41. Zamil, M., & Hassan, R. (2019). Environmental reporting and financial performance: An analysis of Fortune 500 firms. Journal of Environmental Management and Economics, 12(1),