Does Sustainability Reporting Affect the Financial Performance? Evidence from Companies in Consumer Services Industry on Colombo Stock Exchange

Abstract

There is no clear evidence on how sustainability reporting affects financial performance. Further, only a few studies have investigated the relationship between sustainability reporting and financial performance in the Sri Lankan context. Therefore, this study explored how sustainability reporting affects financial performance using data from the most recent six years, from 2015 to 2020, collected from the published annual reports of 35 companies listed under the consumer services industry group of the Colombo Stock Exchange. Sustainability reporting was measured using 40 criteria relating to general, economic, environmental, and social GRI G4 guidelines. Return on equity was used to measure financial performance, while the firm size and firm age were measured using market capitalization and the number of years from the initial listing respectively. The pooled OLS regression model was used to analyze the data. The results indicate a significant relationship between sustainability reporting and financial performance. General Disclosure Average Index, Economic disclosure Average Index, firm size, and firm age have positive relationships with financial performance. Based on this study, stakeholders and shareholders are able to make their decisions related to sustainability reporting in the Sri Lankan context. Moreover, future research can focus on the formulation of a contextually relevant sustainability reporting index.