ASSESSING CORPORATE SUSTAINABILITY PERFORMANCE AND ITS IMPACT ON FIRM PERFORMANCE

Abstract

The commencement of the Stockholm Conference (1972) worked as catalyst for orienting governments and organizations towards the notion of sustainable development. Since then, various efforts had been made at both the national and international level by government and non-government organizations to achieve the objectives of sustainable development. The publication of the report our common future is an important landmark that provided certain guidelines to achieve sustainable development. Business firms play an important role in achieving a state of sustainable development since they use natural resources and have wide impact on the society. In the contemporary era, corporate sustainability has become part of a companies’ vision and policies. Companies are publishing sustainability reports based on different guidelines and indicators. They are highlighting their efforts to achieve a competitive advantage. Yet the measurement issue of corporate sustainability is important, since managers now face the challenge of determining if sustainability is profitable. This question raises two additional questions. First, how to measure the corporate sustainability performance and second, what impact does company’s sustainability exert on its bottom line. For this purpose, several indices have been developed by different agencies throughout the world. The focus areas of these indices are mainly on developed countries. The availability of these indices for developing countries is very limited. Therefore, it is necessary to develop a scale or index to measure the corporate sustainability performance in developing economies. Further, coming to the question faced by managers: if they channelize their resources for improving corporate sustainability performance, does it positively affect the profitability of the company? The initial goal of commercial firms is the generation of profit. Various studies in the literature explored the relationship between the corporate sustainability performance and firm performance, but the direction of the relationship is inconclusive in nature. Literature provides evidence for positive, negative and even no relationship between these two variables of interest. The Indian manufacturing sector plays an important role in terms of both contribution to GDP and employment generation in India. This sector is main consumer of natural resources and has a wide interaction with the society they are working in. These reasons point out the need to 2 measure the corporate sustainability performance of companies in the manufacturing sector. The present study evaluates this relationship in context of the Indian manufacturing industry. Literature reveals various gaps that need to be addressed in future studies. Based on the literature, a conceptual framework has been developed that includes factors of corporate sustainability performance. Twelve factors have been identified for the development of this framework. This research aims to identify the manner through which managers will be able to measure sustainability performance and its impact on firm performance. Information was collected from various brainstorming sessions and personal interviews with academicians and managers. Based on this, both qualitative and quantitative models were developed to analyze and measure the corporate sustainability performance of manufacturing companies. Initially, the Analytical Hierarchy Process has been used for prioritize these factors. Various experts from both industry and academia were contacted for the development of a comparison matrix to rank the factors of corporate sustainability performance. Further, a conceptual model has been proposed to cover the measurement issues of corporate sustainability performance. To achieve the objective of measuring corporate sustainability performance, a scale has been developed by using these factors. The scale development process consist of a pilot study, and scale refinement and validation stage. Data has been collected from managers working in the manufacturing companies. Firm performance has been measured through non-financial parameters. Non-financial performance includes marketing performance, operational performance, and employee performance. This research has attempted to give its major contribution in the body of literature. The main contributions of this research work as follows: • In this study a review and taxonomical classification of the available literature was presented. Different factors of corporate sustainability performance were derived from a further perusal of the present study. These factors are environment management and strategy, pollution prevention, resource management and recycling, eco-friendly products, community responsibility, employee responsibility, customer responsibility, supplier responsibility, investor responsibility, research and development, corporate governance and market value. The firm performance measurement includes both financial and marketing performance. 3 • An AHP based hierarchical model was constructed to prioritize the 12 identified factors and 3 dimensions of the corporate sustainability in order to evaluate the corporate sustainability performance of manufacturing companies. • Next objective of the study was achieved by designing a quantitative model. This model covers two aspects. One is the measurement of the corporate sustainability performance in the manufacturing industry and second one is to evaluate the association between corporate sustainability performance and firm performance. A scale was developed by following a well-defined scale development procedure. The scale development process consist of two stages i.e. item generation and selection, and scale refinement and validation. • In the first stage, items related to the factors were extracted from the available literature. For this purpose different techniques like content analysis, production of the primary pool of items and an evaluation of content and face validity through expert judgment. Next, a pilot survey was conducted for the item analysis, EFA and reliability of the items. This initial refinement process was followed by the purification stage. In this stage reliability, CFA, unidimensionality, convergent and discriminant validity assessment was conducted. This scale has been developed for the measurement of corporate sustainability performance of the Indian manufacturing industry. • Further, hypothesis testing is performed using Smart-PLS. Results of the study show a positive impact of corporate sustainability performance on firm performance in context of the Indian manufacturing sector. This positive association shows that the adoption of corporate sustainability may lead to an increase of profitability for a company by achieving a competitive advantage and cost optimization. Finally, the present study fills a major gaps existing in the field of corporate sustainability performance measurement. The present research has applied a modeling technique and developed a reliable and valid measurement scale for corporate sustainability performance. This scale has not yet been developed in any study in the available literature. In addition, this research is also an extension of the highly debatable issue i.e. the relationship between corporate sustainability performance and firm performance in context of developing economies. Keywords: Corporate Sustainability, Sustainable development, Analytic Hierarchy Process (AHP), Analyzing, Measuring, Model, Indian, Scale Development, Manufacturing sector.