IMPACT OF SUSTAINABILITY REPORTING ON FINANCIAL PERFORMANCE

IMPACT OF SUSTAINABILITY REPORTING ON FINANCIAL PERFORMANCE

ABstract

The study examined the impact of sustainability reporting on the financial performance of selected quoted firms in Nigeria between 2012 and 2016.

Data for the study was generated from the financial reports of selected (10) firms and was analyzed with the use of panel least square technique.

The findings of the study showed that:
Expenditure on economic activities, which represents the costs incurred on production, distribution, exchange, consumption and trade of goods and services, positively and significantly impacted on financial performance (measured by price-earnings ratio) of selected firms in Nigeria; Expenditure on social activities, which represents the costs incurred on social development of host communities of selected firms, positively but weakly impacted on financial performance (measured by price-earnings ratio) of selected firms in Nigeria; Expenditure on environmental activities, which represents the cost incurred on environmental protection of host communities of selected firms, positively and significantly impacted on financial performance (measured by price-earnings ratio) of selected firms in Nigeria

The study concluded that sustainability reporting practices strongly contributed to the financial performance of selected quoted firms in Nigeria between 2012 and 2016.

The study suggested that; There is need to have unified reporting standards and guidelines in Nigeria; There are no legislative requirements in Nigeria compelling companies to prepare and publish sustainability reports. Regulatory agencies such as Corporate Affairs Commission (CAC) and the legislative arm of government should enact regulations to promote sustainability reporting in Nigeria.

chapter One

Foreword

1.1 Research background

Survival and continuity are important goals that all organizations strive to achieve. To achieve these two main goals, focus on how well your organization adapts to the host environment. Adapting an organization to its environment is an example of a symbiotic relationship between two parties whose interests reciprocate. Organizations are expected to intervene in host community crises. Consciously or unconsciously, environmental crises pose a significant threat to organizational performance. Global warming, inadequate health care, poverty, water scarcity, food insecurity, population explosion, technological progress, biodiversity loss, air pollution, extreme weather conditions, noise, current and future neglect of environmental protection, etc. Environmental crisis Degrades the quality and quantity of environmental resources, leading to social and economic instability (Welford, 2000; Epstein, 2008; Ezeabasili, 2009).

Many observers in the corporate world look up to organizations that provide solutions to the environmental crisis in their host communities. Welford (2000) suggests that the economy seems content with the earth’s natural systems collapsing, people suffering from extreme poverty, and social structures collapsing. Business is central to problems and central to solutions. Organizations are expected to fulfill their social responsibilities to their host communities in areas such as environmental protection, human rights, human capital and product protection. Stakeholders, such as shareholders, employees, and financial institutions, want organizations to focus on developing their host communities.

Unerman, et al. (2007) argue that human activity is a contributing factor to the decline of social, ecological and economic nature, facing immediate generations and further affecting future generations. In fact, this position is accepted by a good portion of the world’s population. Many suggest this social injustice

1.2 Problem

Nearly every organization in the world today has adopted a sustainability reporting practice. Statistics from the Global Reporting Initiative show that thousands of organizations around the world produce sustainability reports. Moreover, according to his 2008 KPMG report, which is available, approximately 80% of the world’s 250 largest companies produce sustainability reports. Similarly, KPMG’s 2011 international survey of 34 countries, including Nigeria, found that 95% of the world’s 250 largest companies now report on their corporate responsibility practices. This is a clear example of how organizations are now becoming more transparent about their social, environmental and economic activities and their impact on stakeholders. Sustainability reports have been shown to be beneficial to an organization’s business performance (Kwaghfan, 2015).

Sustainability reporting is conceived as the act of publishing information about how companies contribute to social, economic and environmental sustainable development (Hart, 2007; Jones, 2008; Epstein 2008). Sustainability reporting promotes sustainable development by disclosing information about a company’s social, economic and environmental performance. Sustainability reports ensure that the opportunities open to companies are fully exploited and the risks inherent in social, economic and environmental development are mitigated. Sustainability reporting can impact an organization’s performance either overtly or subtly. The need for companies to be transparent and effectively fulfill their social responsibilities has given rise to the concept of sustainability reporting. However, sustainability reporting practices are not common in Nigeria and few companies publish sustainability reports, especially in the manufacturing sector (Olawale, 2011; Kwaghfan, 2015). The ambiguity of sustainability reporting in Nigeria is due to the fact that regulatory bodies such as the Nigerian Financial Reporting Council (FRCN) and the Corporate Affairs Commission (CAC) do not require organizations to prepare sustainability reports. . It can be said that Nigerian regulators are focusing more on financial reporting than on sustainability reporting. This has made organizations reluctant to account for their social, economic and environmental performance in relation to sustainable development. Researchers have come up with mixed results about the impact of sustainability reporting on an organization’s financial performance. Some studies such as Munasinghe & Kumara (2013). Duke & Campan (2013); Kwaghfan (2015) and Olawale (2011) reported that sustainability reporting has a positive impact on an organization’s financial performance, while Aggrawal (2013) and Makori & Jagongo (2013) ) argue that sustainability reporting has a negative impact on an organization’s financial performance. Burhan and Rahamanti (2012) recommend further research examining variables other than profitability measures to measure the financial performance of organizations. To this end, this study examines the impact of sustainability reporting on corporate performance of selected Nigerian listed companies.

1.3 Purpose of the survey

The main objective of this study is to empirically assess the impact of sustainability reporting on the financial performance of selected Nigerian listed companies. The specific objectives of this research are to:

It studies the impact of spending on economic activity on the financial performance of selected listed companies in Nigeria.
An assessment of the impact of spending on social activities on the financial performance of selected publicly traded companies in Nigeria.
An assessment of the impact of environmental spending on the financial performance of selected Nigerian listed companies.
1.4 Research question

This survey seeks to provide meaningful answers to the following questions:

To what extent has spending on economic activity affected the financial performance of selected listed companies in Nigeria?
How has spending on social activities affected the financial performance of selected listed companies in Nigeria? How much are you spending on environmental activities?

1.5 Research hypothesis

Based on the purpose of the study, the hypotheses underlying the study are formulated as follows:

H01:
Expenditures on economic activity have no material impact on the financial performance of selected Nigerian listed companies.
H02:
Spending on social activities does not have a significant impact on the financial performance of selected Nigerian listed companies.
H03:
Spending on environmental activities does not have a significant impact on the financial performance of selected publicly traded companies in Nigeria.
1.6 Validity of research

The findings of this research will greatly benefit organizations, regulators, accounting professional associations, stakeholders, the organization’s host community, and academia.

The survey helps identify specific sustainability policies and principles that managers of various organizations should follow. This study will contribute to broadening the knowledge base of regulators, government legislatures and relevant accounting professions by taking action to promote sustainability reporting among registrants in Nigeria. The research educates both the host communities in which the organization operates and other stakeholders about the effectiveness of sustainability reporting in meeting information needs and holds companies accountable for their social responsibility. helps. The survey will also educate other companies that have not yet adopted sustainability reporting practices as they educate about their inherent impact on financial performance.

In addition, this study will serve as a reserved knowledge base for future researchers to refer to, thus benefiting future researchers wishing to delve deeper into the topic.

1.7 Scope of investigation

The study is limited to non-financial companies that produced a sustainability report between 2012 and 2016 and were listed on the Nigerian Stock Exchange between 2012 and 2016. The timeframe (2012-2016) was chosen to monitor the topic’s development in recent years.

1.8 Definition of terms

sustainability report

It refers to an organization’s reporting on its social, economic and environmental performance.

financial performance

It represents a general assessment of an organization’s financial health over a specified period of time. An organization’s financial performance cannot be measured arbitrarily. Certain indicators such as return on equity, return on equity, capital adequacy ratio, operating efficiency, earnings and liquidity are used to assess a company’s financial performance. Listed company

A listed company is a term used to classify all organizations whose shares are listed and traded on the floor of a stock exchange.

damage to the ecosystem

Environmental impacts include environmental benefits and environmental costs. Environmental benefits are the benefits derived from the use of natural resources as a result of economic activity. Economic costs, on the other hand, represent the costs associated with actual and potential damage to natural resources from economic activities.

economic impact

Economic effectiveness can be viewed from two perspectives: economic effectiveness and economic costs. Economic benefit refers to a monetary quantifiable benefit, while economic cost indicates the total cost of choosing between alternatives. Economic costs include accounting costs. H. Funds actually used to carry out the action, and opportunity costs i. H. Costs incurred with respect to the alternatives given.

social impact

Social impact is either social cost or social benefit. A social benefit represents an improvement in the well-being of society resulting from a particular course of action. Some social benefits are quantifiable and some are not. On the other hand, social cost is the cost to society due to the behavior of the organization.