Sustainability Reporting and Financial Performance: A study of Selected Listed Companies in Sri Lanka

Abstract

Sustainability Reporting is an emerging concept followed by the organizations all over the world. The overall objective of the organizations is to grow consistently and sustain for a long period of time. Sustainability Reporting indicates the act of quantifying, evolving and being responsible to all stakeholders for the performance of the organizations towards their goal of achieving sustainability. In today’s changing and complicated business world, Sustainability practices are likely to have an impact on corporate profitability and financial performance of the organizations. Therefore, this study intends to examine the impact of Sustainability Reporting on Financial Performance of Listed Companies in Sri Lanka. Return on Assets is used as dependent variable to measure the Financial Performance whilst Economic Performance Disclosure Index, Environmental Performance Disclosure Index and Social Performance Disclosure Index are used as independent variables to measure the level of Global Reporting Initiative (GRI) based Sustainability Reporting. This study considers 39 companies listed on Colombo Stock Exchange for the period from 2016 to 2019. This study uses secondary data gathered from the annual reports of these companies. The data is analysed by means of descriptive statistics, correlation analysis and regression analysis using the software E views 8. The results of the regression analysis show that Environmental Performance Disclosure and Social Performance Disclosure significantly impact on the Return on Assets of the company whereas Economic Performance Disclosure shows an insignificant impact on Return on Assets. Correlation analysis indicates that there is an insignificant relationship between Sustainability Reporting as a whole and Return on Assets at 5% significant level. However, while considering each of the independent variables, Social Performance Disclosure has a significant negative relationship with Return on Assets. Further, Economic and Environmental Performance Disclosures have insignificant relationship with Return on Assets. The findings of the study have an important implication for the management of the companies and other interested parties. Further researches can be extended by choosing more time periods of data and choosing other indicators of financial performance.