Empirical study on the relation between Sustainability and Financial performance.

Abstract

In the past years, the interest on corporate sustainability has grown rapidly and it has become very important topic; many companies are making efforts to become more and more sustainable. However, the impact of corporate sustainability on firm’s financial performance has been widely debated. This study investigates the effects of sustainability performance on financial performance, in particular on firm value, measured with Tobin’s Q ratio. We have tried to identify the source of market value by disaggregating the effects on the different components of Gordon’s formula: expected dividends, WACC cost of equity and growth rate. The empirical evidence shows that environmental and social dimensions of sustainability are positively and significant related with company’s value. Additional evidence suggests that environmental sustainability negatively affects expected dividends and that sustainability performance has no significant influence on WACC cost of equity and growth rate.