The interrelationship between sustainable business practices and financial performance in an emerging market

Abstract

This research report interrogates the linear association between sustainable business practices and corporate financial performance over an 11-year analysis of the JSE Socially Responsible Investment Index (SRI Index). The primary objective is to ascertain the difference in the financial performance of companies listed on the JSE SRI Index and companies not listed on the JSE SRI Index. The financial performance of two groups of companies are compared in three periods through quantitative analysis. The three periods are 2004 to 2009 (39 pairings), 2010 to 2014 (67 pairings) and 2004 to 2015 (43 pairings). The percentage change in the financial performance between the SRI and son-SRI companies in each period is tested. The secondary objective is to establish whether there was a difference in the financial performance of the sustainably advanced group of companies. A pre-2010 and post-2010 comparison of financial performance was quantitatively performed on 36 JSE SRI companies. The principles of sustainability and corporate social responsibility provide a comprehensive business case for the inculcation and investment into its practices. Sustainable business practices are changing the orientation of business from short-term profit maximisation for shareholders to intergenerational equity for stakeholders. The results of the study find that companies not listed on the JSE SRI Index are more profitable than the SRI companies over the 11-years. Furthermore, the pre-2010 SRI group financially outperform the post-2010 group as market conditions dictate financial performance.