Impact of environmentally sustainable practices on corporate financial performance

: empirical findings from portuguese SMEs

Abstract

Nowadays, we are surrounded by environmental, social, and economic challenges, which have triggered the increasing interest from governments, businesses, and individuals insustainability. Furthermore, the evidence of the environmental repercussions caused by corporations has intensified the pressures from external and internal entities to shift towards more sustainable businesses. This study aims to assess the relationship between financial performance and the implementation of environmentally sustainable practices. The analysis focuses on Portuguese small and medium enterprises (SMEs) between 2010 and 2017 and intends to understand if financial performance can be an attractive incentive for SMEs to investin greener practices. A quantitative approach was employed, using a questionnaire database from Instituto Nacional de Estatística (INE). The findings indicate mixed conclusions depending on the measure of financial performance considered and also suggest statistically significant relationships between most of the sustainability and financial performance measures. A negative linkage was concluded between environmental performance measured by green investments and financial performance, when measured as the ROA, ROE, sales growth or assets growth. However, when measuring sustainability as energy efficiency or green hiring the findings demonstrate a non-statistically significant but positive correlation with financial performance. Besides, there is a direct relationship between Debt Ratio and green investing, and overall, a company with a better performance regarding the environment is expected to have higher leverage.

Date of Award	24 Jan 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)