Impact of Environmental Performance on Financial Performance: Empirical Evidence from Indian Banking Sector
DOI:
https://doi.org/10.15415/jtmge.2021.121002Keywords:
Banking sector, Environmental performance, Financial performance, Content analysisAbstract
There has been long-standing debate over whether or not firms gain economic competiveness from reducing their impact on the environment. Although ample literature is available on association between environmental performance and financial performance across various sectors, little empirical evidence is available in context of Indian banking sector. This research aims to analyze whether there is any significant relationship between environmental performance and financial performance of banks operating in India for a period 2013-14 to 2017-18. Secondary data has been collected for a sample of 83 banks operating in India. Content analysis was applied to extract information about environmental performance disclosed by sample banks followed
by construction of environmental disclosure score index. Hierarchical multiple regression was applied to analyze relationship between environmental performance and financial performance after controlling for effects of size, financial leverage and capital intensity. Results exhibit no significant relationship between environmental performance and financial performance of banks operating in India. Findings of this research are expected to provide insight to users and readers of financial statements to have better understanding about the environmental practices carried out by banks. It would also contribute significantly towards decision making for policy makers in Indian banking sector to establish mandatory environmental legislations for reporting on environmental practices in order to improve non financial disclosure and financial performance in Indian banking sector.
Downloads
References
Aggarwal, P. (2013). Impact of Sustainability Performance of Company on its Financial Performance; A Study of Listed Indian Companies. Global Journal of Management and Business Research Finance, 13(11), 61-70.
Ahsan, A.F.M.M. (2012). Can ROE be used to Predict Portfolio Performance?. Journal of Academic Research in Economics, 5(1), 5-20.
Alikhani, R. & Maranjory, M. (2013). An Investigation on the Relationship between Social and Environmental Information Disclosure Level and Firms Performance in Iran. International Research Journal of Applied and Basic Sciences, 5(1), 125-128.
Arslan-Ayaydin, O., & Thewissen, J. (2016). The Financial Reward for Environmental Performance in the Energy Sector. Energy & Environment, 27(3), 389-413. https://doi.org/10.1177/0958305X15627547
Molina-Azorín, J.F., Claver-Cortés, E., Lopez-Gamero, M.D., & Tarí, J.J. (2009). Green
Management and Financial Performance: A Literature Review. Management Decision, 47, 1080-1100. https://doi.org/10.1108/00251740910978313
Balabanis, G., Phillips, H.C., & Lyall, J. (1998). Corporate Social Responsibility and Economic Performance in the Top British Companies: Are they Linked?. European Business Review, 98(1), 25–44. https://doi.org/10.1108/09555349810195529
Bansal, P. (2005). Evolving Sustainably: A Longitudinal Study of Corporate Sustainable Development. Strategic Management Journal, 26(3), 197-218. https://doi.org/10.1002/smj.441
Banuri, T. & Opschoor, H. (2007). Climate Change and Sustainable Development. Economic and Social Affairs, DESA Working Paper No. 56, 1-24.
Bayoud, N.S., Kavanagh, M., & Slaughter, G. (2012). Factors Influencing Levels of Corporate Social Responsibility Disclosure by Libyan Firms: A Mixed Study. International Journal of Economics and Finance, 4(4), 13-29. https://doi.org/10.5539/ijef.v4n4p13
Berman, S.L., Wicks, A.C., Kotha, S., & Jones, T.M. (1999). Does Stakeholder Orientation Matter? The Relationship between Stakeholder Management Models and Firm Financial Performance. Academy of Management Journal, 42(5), 488-506. https://doi.org/10.2307/256972
Bimha, A., & Nhamo, G. (2017). Measuring Environmental Performance of Banks: Evidence from Carbon Disclosure Project (CDP) Reporting Banks. Journal of Economic and Financial Sciences, 10(1), 26-46. https://doi.org/10.4102/jef.v10i1.3
Brammer, S., & Millington, A. (2008). Does it Pay to be Different? An Analysis of the Relationship between Corporate Social and Financial Performance. Strategic Management Journal, 29(12), 1325-1343. https://doi.org/10.1002/smj.714
Branco, M.C., & Rodrigues, L.L. (2008). Factors Influencing Social Responsibility Disclosure by Portuguese Companies. Journal of Business Ethics, 83, 685-701. https://doi.org/10.1007/s10551-007-9658-z
Brundtland, G. H. (1987). World Commission on Environment and Development: Our Common Future. Oxford University Press, UK.
Busch, T. & Hoffmann, V.H. (2011). How Hot is your Bottom Line? Linking Carbon and Financial Performance. Business & Society, 50(2), 233–265. https://doi.org/10.1177/0007650311398780
Chang, K. (2015). The Impacts of Environmental Performance and Propensity Disclosure on Financial Performance: Empirical Evidence from Unbalanced Panel Data of Heavy Pollution Industries in China. Journal of Industrial Engineering and Management, 8(1), 21-36. https://doi.org/10.3926/jiem.1240
Chariri, A., & Ghozali, I. (2007). Accounting Theory, 3rd ed., University of Diponegoro, Semarang, Indonesia.
Chen, K.H., & Metcalf, R.W. (1980). The Relationship between Pollution Control Records and Financial Indicators Revisited. The Accounting Review, 55(1), 168–177.
Chowdhury, R.K. (2018). Corporate Sustainability and Financial Performance of Bangladeshi Banks. Doctoral Thesis. University of Waterloo, Ontario, Canada.
Cordeiro, J.J., & Sarkis, J. (1997). Environmental Proactivism and Firm Performance: Evidence from Security Analyst Earning Forecasts. Business Strategy and the Environment, 6(2), 104-114. https://doi.org/10.1002/(SICI)1099-0836(199705)6:2<104::AID-BSE102>3.0.CO;2-T
Cyert, R., & March, J. (1963). The Behavioral Theory of the Firm. Englewood Cliffs: Prentice Hall.
Deegan, C. (2002). The Legitimizing Effect of Social and Environmental Disclosures: A Theoretical Foundation. Accounting, Auditing and Accountability Journal, 15(3), 282–311. https://doi.org/10.1108/09513570210435852
Deephouse, D.L., Newburry, W., & Soleimani, A. (2016). The Effects of Institutional Development and National Culture on Cross-National Differences in Corporate Reputation. Journal of World Business, 51(3), 463-473. https://doi.org/10.1016/j.jwb.2015.12.005
Delmas, M.A., Nairn-Birch, N., & Lim, J. (2015). Dynamics of Environmental and Financial Performance: The Case of Greenhouse Gas Emissions. Organization and Environment, 28(4), 374-393. https://doi.org/10.1177/1086026615620238
Field, A. (2008). Multiple Regression using SPSS. Research Methods in Psychology: Multiple Regression, 1-11.
Freedman, M., & Jaggi, B. (1982). Pollution Disclosures, Pollution Performance and Economic Performance. Omega, 10(2), 167–176. https://doi.org/10.1016/0305-0483(82)90051-2
Freedman, M., & Jaggi, B. (1988). An Analysis of the Association between Pollution Disclosure and Economic Performance. Accounting, Auditing & Accountability Journal, 1(2), 43-58. https://doi.org/10.1108/EUM0000000004623
Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Pitman, Boston, MA.
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. New York Times Magazine, 32–33.
Funk, K. (2003). Sustainability and Performance. MIT Sloan Management Review, 44(2), 65-70.
Gbadamosi, W.A. (2016). Corporate Social Responsibility and Financial Performance of Banks in United States. Walden Dissertations and Doctoral Studies Collection, Walden University, Minnesota.
Gilley, K.M., Worrell, D.L., Davidson, W.N., & El-Jelly, A. (2000). Corporate Environmental Initiatives and Anticipated Firm Performance: The Differential Effects of Process-Driven Versus Product-Driven Greening Initiatives. Journal of Management, 26(6), 1199-1216. https://doi.org/10.1177/014920630002600607
Global Reporting Initiative (2013). G4 Sector Disclosures. Retrieved from https://www.globalreporting.org/resourcelibrary/GRI-G4-Financial-Services-Sector-Disclosures.pdf
Goldstein, D., Hilliard, R., & Parker, V. (2011). Environmental Performance and Practice across Sectors: Methodology and Preliminary Results. Journal of Cleaner Production, 19(9-10), 946-957. https://doi.org/10.1016/j.jclepro.2010.12.012
Grimmer, M., & Bingham, T. (2013). Company Environmental Performance and Consumer Purchase Intentions. Journal of Business Research, 66(10), 1945–1953. https://doi.org/10.1016/j.jbusres.2013.02.017
Hackman, J.R. (1980). Work Redesign and Motivation. Professional Psychology, 11(3), 445-455. https://doi.org/10.1037/0735-7028.11.3.445
Haninun, H., Lindrianasari, L., & Denziana, A. (2018). The Effect of Environmental Performance and Disclosure on Financial Performance. International Journal of Trade and Global Markets, 11(1/2), 138-148. https://doi.org/10.1504/IJTGM.2018.092471
Hart, S.L., & Ahuja, G. (1996). Does it Pay to be Green? An Empirical Examination of the Relationship between Emission Reduction and Firm Performance. Business Strategy and the Environment, 5(1), 30-37. https://doi.org/10.1002/(SICI)1099-0836(199603)5:1<30::AID-BSE38>3.0.CO;2-Q
Hillman, A.J., & Keim, G.D. (2001). Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line? Strategic Management Journal, 22(2), 125-139. https://doi.org/10.1002/1097-0266(200101)22:2<125::AID-SMJ150>3.0.CO;2-H
Horvathova, E. (2010). Does Environmental Performance affect Financial Performance? A Meta-Analysis. Ecological Economics, 70(1), 52–59. https://doi.org/10.1016/j.ecolecon.2010.04.004
Hull, C.E., & Rothenberg, S. (2008). Firm Performance: The Interactions of Corporate Social Performance with Innovation and Industry Differentiation. Strategic Management Journal, 29(7), 781-789. https://doi.org/10.1002/smj.675
IPCC (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva: IPCC.
Jaikumar, G., Karpagam, M., & Thiyagarajan, S. (2013). Factors Influencing Corporate Environmental Performance in India. Indian Journal of Corporate Governance, 6(1), 1-17. https://doi.org/10.1177/0974686220130101
Jain, P., Vyas, V., & Chalasani, D.P.S. (2016). Corporate Social Responsibility and Financial Performance in SMEs: A Structural Equation Modelling Approach. Global Business Review, 17(3), 630-653. https://doi.org/10.1177/0972150916630827
Kayri, M. (2010). The Analysis of Internet Addiction Scale using Multivariate Adaptive Regression Splines. Iran Journal of Public Health, 39(4), 51-63.
King, A.A., & Lenox, M.J. (2001). Does it Really Pay to be Green? An Empirical Study of Firm Environmental and Financial Performance. Journal of Industrial Ecology, 5(1), 105-116. https://doi.org/10.1162/108819801753358526
Klossner, D. (2014). Factors that Influence Firms’ Environmental Performance: An Examination of Large Companies. Doctoral Thesis. Weatherhead School of Management. Case Western Reserve University, Ohio, United States.
Konar, S., & Cohen, R.A. (2001). Does the Market Value Environmental Performance? Review of Economics and Statistics, 83(2), 281-289. https://doi.org/10.1162/00346530151143815
Laskar, N., Chakraborty, T.K., & Maji, S.G. (2017). Corporate Sustainability Performance and Financial Performance: Empirical Evidence from Japan and India. Management and Labour Studies, 42(2), 1-19. https://doi.org/10.1177/0258042X17707659
Lin, C.-S., Chang, R.-Y., & Dang, V.T. (2015). An Integrated Model to Explain how Corporate Social Responsibility Affects Corporate Financial Performance. Sustainability, 7(7), 8292-8311. https://doi.org/10.3390/su7078292
Lioui, A., & Sharma, Z. (2012). Environmental Corporate Social Responsibility and Financial Performance: Disentangling Direct and Indirect Effects. Ecological Economics, 78, 100-111. https://doi.org/10.1016/j.ecolecon.2012.04.004
Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality between Corporate Social Performance and Financial Performance: Evidence from Canadian Firms. Journal of Business Ethics, 89(3), 409-422. https://doi.org/10.1007/s10551-008-0007-7
Malarvizhi, P., & Matta, R. (2016). Link between Corporate Environmental Disclosure and Firm Performance–Perception or Reality. Review of Integrative Business and Economics Research, 5(3), 1-34.
Manrique, S., & Marti-Ballester, C.-P. (2017). Analyzing the Effect of Corporate Environmental Performance on Corporate Financial Performance in Developed and Developing Countries. Sustainability, 9(11), 1-30. https://doi.org/10.3390/su9111957
Maqbool, S., & Zameer, M.N. (2018). Corporate Social Responsibility and Financial Performance: An Empirical Analysis of Indian Banks. Future Business Journal, 4(1), 84-93. https://doi.org/10.1016/j.fbj.2017.12.002
McGuire, J.B., Sundgren, A., & Schneeweis, T. (1988). Corporate Social Responsibility and Firm Financial Performance. Academy of Management Journal, 31(4), 854-872. https://doi.org/10.5465/256342
Muhammad, N., Scrimgeour, F., Reddy, K., & Abidin, S. (2015). The Relationship between Environmental Performance and Financial Performance in Periods of Growth and Contraction: Evidence from Australian Publicly Listed Companies. Journal of Cleaner Production, 102, 324-332. https://doi.org/10.1016/j.jclepro.2015.04.039
Munoz, R. M., Pablo, J. D. S. & Pena, I. (2015). Linking Corporate Social Responsibility and Financial Performance in Spanish Firms. European Journal of International Management, 9(3), 368-383. https://doi.org/10.1504/EJIM.2015.069133
Nag, T., & Bhattacharyya, A.K. (2016). Corporate Social Responsibility Reporting in India: Exploring Linkages with Firm Performance. Global Business Review, 17(6), 1427–1440. https://doi.org/10.1177/0972150916653032
Naila, D.L. (2013). The Effect of Environmental Regulations on Financial Performance in Tanzania: A Survey of Manufacturing Companies Quoted on the Dar Es Salaam Stock Exchange. International Journal of Economics and Financial Issues, 3(1), 99-112.
Nakao, Y., Amano, A., Matsumura, K., Genba, K., & Nakano, M. (2007). Relationship between Environmental Performance and Financial Performance: An Empirical Analysis of Japanese Corporations. Business Strategy and the Environment, 16(2), 106-118. https://doi.org/10.1002/bse.476
O’Brien, R.M. (2007). A Caution Regarding Rules of Thumb for Variance Inflation Factors. Quality & Quantity, 41, 673-690. https://doi.org/10.1007/s11135-006-9018-6
Palepu, K.G., Healy, P.M., Bernard, V.L., Wright, S., Bradbury, M., & Lee, P. (2010). Business Analysis & Valuation: Using Financial Statements. (4th ed.). Mason: South-Western Cengage Learning.
Pallant, J. (2007). SPSS Survival Manual. 2nd ed., McGraw Hill, Maiderhead, Berkshire.
Palmer, K., Oates, W.E., & Portey, P.R. (1995). Tightening Environmental Standards: The Benefit Cost or the No-Cost Paradigm?. Journal of Economic Perspectives, 9(4), 119–132. https://doi.org/10.1257/jep.9.4.119
Preston, L.E., & O’Bannon, D.P. (1997). The Corporate Social-Financial Performance Relationship. Business & Society, 36(4), 419–429. https://doi.org/10.1177/000765039703600406
Rajput, N., Arora, S., & Khanna, A. (2013). An Empirical Study of Impact of Environmental Performance on Financial Performance in Indian Banking Sector. International Journal of Business and Management Invention, 2(9), 19-24.
Rowley, T., & Berman, S. (2000). A Brand New Brand of Corporate Social Performance. Business & Society, 39(4), 397-418. https://doi.org/10.1177/000765030003900404
Roy, S.S., & Mitra, S. (2015). Corporate Triple Bottom Line Reporting: An Empirical Study on the Indian Listed Power Companies. SDMIMD Journal of Management, 6(2), 33-45. https://doi.org/10.18311/sdmimd/2015/2657
Russo, M.V., & Fouts, P.A. (1997). A Resource-Based Perspective on Corporate Environmental Performance and Profitability. Academy of Management Journal, 40(3), 534-559. https://doi.org/10.2307/257052
Saeidi, S.P., Sofain, S., Saeidi, P., Saeidi, S.P., & Saaeidi, S.A. (2015). How Does Corporate Social Responsibility Contribute to Firm Financial Performance? The Mediating Role of Competitive Advantage, Reputation, and Customer Satisfaction. Journal of Business Research, 68(2), 341-350. https://doi.org/10.1016/j.jbusres.2014.06.024
Sandaruwan, H.M.T.G.C., & Ajward, R. (2018). The Relationship between Corporate Social Responsibility and Financial Performance: The Effect of Easy Access to Capital and Managerial Ownership. Sri Lankan Journal of Management, 22(2), 74-105.
Sarumpaet, S. (2005). The Relationship between Environmental Performance and Financial Performance of Indonesian Companies. Indonesian Journal of Accounting and Finance, 7(2), 89-98.
Sharma, S., & Vredenburg, H. (1998). Proactive Corporate Environmental Strategy and the Development of Competitively Valuable Organizational Capabilities. Strategic Management Journal, 19(8), 729-753. https://doi.org/10.1002/(SICI)1097-0266(199808)19:8<729::AID-SMJ967>3.0.CO;2-4
Singal, M. (2013). The Link between Firm Financial Performance and Investment in Sustainability Initiatives. Cornell Hospitality Quarterly, 55(1), 19-30. https://doi.org/10.1177/1938965513505700
Stanwick, P.A., & Stanwick, S.A. (1998). The Relationship between Corporate Social Performance, and Organizational Size, Financial Performance, and Environmental Performance: An Empirical Examination. Journal of Business Ethics, 17, 195-204. https://doi.org/10.1023/A:1005784421547
Stefan, A., & Paul, L. (2008). Does it Pay to be Green? A Systematic Overview. Academy of Management Perspectives, 22(4), 45-62. https://doi.org/10.5465/amp.2008.35590353
Tambovceva, T. (2016). Classification of Factors Influencing Environmental Management of Enterprise. Technological and Economic Development of Economy, 22(6), 867-884. https://doi.org/10.3846/20294913.2016.1160006
Templeton, G.F. (2011). A Two-Step Approach for Transforming Continuous Variables to Normal: Implications and Recommendations for IS Research. Communications of the Association for Information Systems, 28(4), 41-58. https://doi.org/10.17705/1CAIS.02804
Teoh, H.Y., Pin, F.W., Joo, T.T., & Ling, Y.Y. (1998). Environmental Disclosures-Financial Performance Link: Further Evidence from Industrialising Economy Perspective. Second Asian Pacific Interdisciplinary Research in Accounting Conference (APIRA). Paper presented at APIRA 98 in Osaka Conference, Japan.
Trudel, R., & Cotte, J. (2009). Does it Pay to be Good?. MIT Sloan Management Review, 50(2), 61-68.
UNEPFI (2019). Climate Action in Financial Institutions. Retrieved from https://www.mainstreamingclimate.org/unepfi/
Usman, A.B., & Amran, N.A.B. (2015). Corporate Social Responsibility Practice and Corporate Financial Performance: Evidence from Nigeria Companies. Social Responsibility Journal, 11(4), 749–763. https://doi.org/10.1108/SRJ-04-2014-0050
Waddock, S.A., & Graves, S.B. (1997). The Corporate Social Performance-Financial Performance Link. Strategic Management Journal, 18(4), 303–319. https://doi.org/10.1002/(SICI)1097-0266(199704)18:4<303::AID-SMJ869>3.0.CO;2-G
Wagner, M. (2001). A Review of Empirical Studies Concerning the Relationship between Environmental and Economic Performance: What Does the Evidence tell us?. Luneburg, Germany: Center for Sustainability Management, pp.1-52.
Walley, N., & Whitehead, B. (1994). It's Not Easy being Green. Harvard Business Review, 72, 46–52.
Wisuttisak, P., & Wisuttisak, C. (2016). Comparative Study on Regulatory Requirements on Corporate Social Responsibility in Australia and Thailand. International Journal Economic Policy in Emerging Economies, 9(2), 158–168. https://doi.org/10.1504/IJEPEE.2016.077277
Worrell, D., Gilley, K. M., Davidson, W. N. & El-jely, A. (1995). When Green Turns to Red: Stock Market Reaction to Announced Greening Activities. Paper presented at the Academy of Management Meeting, Vancouver.
Downloads
Published
How to Cite
Issue
Section
License
Articles in Journal of Technology Mangement for Growing Economies by Chitkara University Publications are Open Access articles that are published with licensed under a Creative Commons Attribution- CC-BY 4.0 International License. Based on a work at https://tmg.chitkara.edu.in. This license permits one to use, remix, tweak and reproduction in any medium, even commercially provided one give credit for the original creation.
View Legal Code of the above-mentioned license, https://creativecommons.org/licenses/by/4.0/legalcode
View Licence Deed here https://creativecommons.org/licenses/by/4.0/
![]() |
Journal of Technology Mangement for Growing Economies by Chitkara University Publications is licensed under a Creative Commons Attribution 4.0 International License. Based on a work at https://tmg.chitkara.edu.in/ |