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ABSTRACT
This research investigates the impact of Sustainability Reporting on Firms' Financial Performance:
Special Reference to the Listed Companies in the Colombo Stock Exchange in Sri Lanka. The study
evaluates the impact of economic, environmental, and social disclosures as the sustainability reporting
on the firm's financial performance, including Listed Companies in Sri Lanka. It was able to identify
the level of disclosures on sustainability performance is lower than the expectation and compare
foreign listed entities. As the sustainability disclosure is not a mandatory part to be provided in annual
reports and voluntarily disclosing the performances are very low. Thus, 102 listed companies with
Sustainability reporting of selected for the analysis purpose from 138 listed companies. All these
companies follow the Global Reporting Initiative (GRI) G4 guidelines. This study considers
secondary data collected from the annual reports, both from the Financial and Non-Financial
reporting. The descriptive analysis, correlation tests, and regression analysis have conducted for
analyzing purposes. The findings show a moderate positive relationship between the sustainability
reporting, including economic, environmental, and social disclosures and ROA on financial
performance. Thus, the consideration either on sustainability performance or on financial performance
a company can achieve a moderate positive vibe of the year.
INTRODUCTION
First and foremost, the achievement of every the environment and society through this
company to be the most earning and to be with constant interaction with their environment
a powerful financial background. Because the (Uwuigbe et al., 2018).
financial performance of every company
A sustainability report is an organizational
becomes the sign of them. that will indicate
report that gives information about economic,
the overall business performance. It leads the
environmental, social, and governance
interest of investors to be high. Investors from
performance. Sustainability reporting is an
all over the world will try to find out the
extension of Corporate Social Reporting
performance of the companies. For the
(CSR) to include the environmental and
investors, return on their investments is highly
economic dimensions instead of only social
valuable, and the company with high financial
responsibility disclosures. "It provides
performance will bring all the aspects of the
comprehensive sustainability details of a
investors in the long term. Furthermore, the
company, and CSR now includes matters such
financial profitability of a firm will boost the
as climatic change, warming and animal
income of employees, bring better quality and
rights, conservation of biodiversity and
diversified products, will have a better place
human rights as well as social equity. The
in environment-friendly products. Hence,
interest of investors in company's non-
based on their activities, they tend to impact
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financial performance has grown significantly Accountants of Sri Lanka (ICASL), Issued the
over the past few years" (Ernst & Young, Code of Best Practice on Corporate
2009) Governance 2017. Even though Investors and
other stakeholders can assess sufficient
The profitable business is not enduring as a
information on how ESG risks and
complete standing for economic growth. The
opportunities are recognized, managed,
awareness of corporate environmental
measured, and reported in the company's
performance (CEP) is growing as an
annual report.
invaluable information tool for global
resources (Gnanaweera & Kunori, 2018). "There is incomplete literature and an
Sustainability reporting is an advantageous ongoing debate on the issue of performance of
tender to provide information about the firms. There is wider gap specifically in the
organization's environmental initiation and case of growing economics" (Mirza and
environmental information. Not only the Javed,2013) like Sri Lanka because most of
financial information include the the research done based on the data from
Sustainability Reporting but also non- developed economics. At the same time,
financial information considering the Sustainability performance varies
reporting practice. Nugroho, (2014) considerably in their way of performance
consisting of social activities and largely due to their voluntary nature and the
environmental information that emphasize lack of an accountability framework in
more on the principles and standards of reporting the sustainability performance.
disclosure that can reflect the company's Thus, companies are free to choose from the
overall activity level as a whole to enable the guidelines in any way they prefer, which
company to grow continuously (sustainable contributes to assessing the performance.
performance). Therefore, this topic on sustainability
performance in the Sri Lankan context
Consequently, the progressive companies to
receives relatively less attention in research
enlighten about their economic, social, and
than in other parts of the world.
environmental information in sustainability
reporting increasingly become a trend and all It is questionable that the difference in
Company stakeholders (Chariri and Firman, reporting practices due to lack of proper
2009). The companies disclose in Sri Lanka, reporting regulations criticize the
and the Sustainability Report is published stakeholders for depending solely on the
mostly as part of the annual report. However, information provided by the companies for
the scholar's studies are concern with the making decisions. Therefore, the research
sustainability reporting regarding the problem of this study can be identified as
Disclosers facts. Rajeshwaran & Ranjani, follows: "What is the Impact of Sustainability
(2015); Dissanayake, Tilt, & Xydias-Lobo, Reporting on Firms' Financial Performance in
(2016); Dalgleish et al., (2007). It indicates Sri Lanka?"
that there is a gap between sustainability
The following research questions are elevated
reporting and Firms Financial performance.
based on the research problem, according to
However, many studies conduct developing
the study. What is the current level of
countries unless in Sri Lanka. Therefore, this
Sustainability Reporting Disclosure? What is
lack of knowledge has led to the conduct of
Sustainability Reporting's impact on the
the study.
Financial Performance of listed companies in
Marina Grahovar (2012) find that some firms Sri Lanka? The Study's primary objective is to
misuse the term "economic, environmental, identify the current level of Sustainability
and social disclosures" to satisfy the Reporting Disclosure and Financial
shareholders; the organizations provide only Performance of listed companies in Sri Lanka.
good information regarding the economic, Furthermore, to assess the impact of
environmental, and social activities which Sustainability Reporting on the Financial
enhance their reputation. In the Sri Lankan performance of the listed companies in Sri
context, The Institute of Chartered Lanka.
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LITERATURE REVIEW captures the most important alarms of the
public regarding business and society
Today's market is highly competitive with relationships, and it has a bright future.
unprecedented pressure for the successes and
sustains for their successful future. As per Zhang et al. (2003), social auditing is
Corporations are being pressured by a vigorous process consisting of planning,
shareholders and investors and other accounting, auditing and reporting,
stakeholders such as customers, creditors, embedding, and stakeholder engagement
suppliers, society and community, and the followed by an organization to account for its
environmental anteroom. According to Reddy sustainability performance and improve its
& Gordon, (2010), it is related to numerous sustainability performance. Companies'
contemporary business and reporting performances towards sustainability in a
practices, including corporate social balanced and holistic manner will position
responsibility (CSR), CS, corporate them to innovate and compete in the rapidly
citizenship, integrated reporting, and changing and resource-constrained global
sustainable entrepreneurship. The terms economy. It is no longer enough for
"Sustainability" or "Sustainability Reporting" companies to perform towards society or the
is not having a single meaning, even though it environment in isolation. Comprehensive
is a vast area when revising the literature. sustainability strategies are expected from
companies because various survey reports
The historical evaluation of sustainability (Hughes, G. 2013; KPMG, 2008, 2013)
reporting focuses on developing indicate a theoretical relationship between CS
sustainability, and related reporting evident reporting and firms' performance.
several shifts (Fifka, 2012; Kolk, 2010). In
earlier studies mostly referred to in the 1970s The profitability of a company measured by
and 1980s, studies mostly referred to social ROA and ROE indicators affects CSR
reporting, and environmental reporting was at disclosure. The results of this study support
the centre of attention in the 1990s the results of the studies conducted by
(Swarnapali, 2017). In the millennium era, the Yuniasih et al. (2007), and the research
terms then predominantly shifted to the conducted by Soelistyoningrum and Prastiwi
analysis of Corporate Sustainable Reporting (2011) showed that Sustainability Report
(CSR) or sustainability reporting (Fifka, disclosure had significant effects on ROA in a
2012). Then the development of the voluntary positive direction. The results were consistent
standard-setting by the Global Reporting with a previous study conducted by Dahlia
Initiatives (GRI) (Kolk, 2010). There are and Siregar (2008). Also, as an accounting-
different stages of development to reflect CS based measurement, ROA gauges the
and CSR adoption. In the First stage, firms operating and financial performance of the
began engaging in window dressing activities firm (Klapper & Love, 2002). The
by changing the wording to reflect CSR measurement is such that the higher the ROA,
language without substance (Aras & the effect is the use of assets to the advantage
Crowther, 2009), The second stage called cost of shareholders (Haniffa & Huduib, 2006).
containment, whereby firms re-engineer the Higher ROA also reflects the company's
business process to reduce consumptions of effective use of its assets in serving the
water and energy that reduce costs and economic interests of its shareholders
improve financial performance. Stakeholder (Ibrahim & AbdulSamad, 2011).
engagement is the third stage, whereby firms Institutional Theory
start being concerned by employee and
customer satisfaction. The fourth stage Institutional theory is an approach to
consists of communicating about these understanding organizations and management
initiatives by developing CSR reports. The practices as social rather than economic
fifth stage is sustainability, which would pressures. It has become a popular perspective
imply radical changes to business practice and within management theory because of its
a significant re-engineering process ability to explain organizational behaviours
(Swarnapali, 2017). CS concept addresses and that defy economic rationality (Eric H, 2013).
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The explanation, according to institutional that a firm has with its stakeholders". The
theory, is based on the key idea that the firm's target is to be maximizing profit and
adoption and retention of many organizational shareholder wealth.
practices are often more dependent on social
Agency Theory
pressures for conformity and legitimacy than
on technical pressures for economic The agency theory said the relationship which
performance (Eric H, 2013). exists between the owners and managers is
based on principal-agent. This theory has
Legitimacy Theory
gained significance in the wake of corporate
Legitimacy theory is essential to meet the governance scandals like the Satyam scam. It
societal norms and expectations to ensure the is well known that conflict of interest and
firm's survival in the long term. The definition information asymmetry exists between
of this theory is "a condition which exists company managers (insiders) and
when an entity's value system is in harmony shareholders & other stakeholders (outsiders).
with the value system of society." (Lindblom, De Klerk & de Villiers, (2012) said, in the
1993). The proponents of legitimacy theory absence of adequate public disclosure by
argue that sustainability reporting tends to companies, the amount of risk perceived by
reduce the risk of regulatory actions and investors rises significantly. It causes the
boycotts by stakeholders, and it strengthens market to undervalue the shares or demand
the firm's license to operate (Patten, 1992); more returns from firms that do not disclose
(Deegan, 2000). "it is probable that legitimacy appropriately. Sustainability Reporting
theory is the most widely used theory to reduces information asymmetry and risk
explain environmental and social disclosures" perceived by investors, increases market
(Campbell, Craven, & Shrives, 2003) while, efficiency, and reduces the cost of capital to
according to Gray, Kouhy, & Lavers, (1995), the firm (Dhaliwal et al., 2011; Warren &
legitimacy theory has an advantage over other Thomsen, 2012).
theories in that it provides disclosing
Sri Lanka like a developing country, although
strategies that organizations may adopt to
increasing the importance of the reporting
legitimate their existence that may be
practices of sustainability. In terms of
empirically tested.
sustainability reporting in Sri Lanka evolved
Stakeholder Theory over the last decade, with chambers of
commerce and professional accounting
Stakeholders refer to those individuals,
bodies championing the cause through awards
groups, or organizations that are likely to
programs that recognize best in class
influence or be influenced by the operations
performance providing the motivation
and decisions of the firm. According to
required to stimulate activity (she-consults,
Freeman, (1984), the stakeholder theory
2018). The GRI Guidelines for social and
upholds that firms have accountability
environmental reporting are voluntarily
towards a broad range of stakeholders, apart
adopting and encouraging by more corporates
from shareholders, i.e. creditors, customers,
in Sri Lanka. Consequently, the Failure of
suppliers, employees, government,
companies to upload their Sustainability
community, environment, and future
Reports to the GRI database deters research
generations. King (2002) recognized the
on the subject besides portraying a lower level
significance of integrated sustainability
of reporting than the actual level (she-
reporting in strengthening the relationship
consults, 2018).
between a firm and society in which it
operates. Ignoring the stakeholder interests Several studies are conducting the Financial
may taint the firm's public image, which Performance and Sustainability and different
would unfavourably affect its financial ways to analyze this relationship. There are
performance. Elijido-Ten, (2006) defined as different results on each study, and they are
"Basic proposition of stakeholder theory is sorted into three types of impact: positive,
that the firm's success is dependent upon the neutral, and negative (Hong Yuh, Fábio, &
successful management of the relationships Thiago, 2017). Kapoor and Sandhu (2010)
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analyze the annual reports and websites of 2019). Low numbers of researchers have
Indian companies regarding the impact of focused on this area in Sri Lankan contest.
sustainability in corporate financial The findings of the Thilakasiri, (2012)
performance (CFP). The study was conducted identified different organizations used
in 75 companies representing 14 industries to different methods to disclose their CSR
identify the current social responsibility activities, although they had all adopted
reporting framework. GRI guidelines were international CSR standards and principles to
used in this study and found a low level of practice them. Wijesinghe (2012) conducted a
disclosures in sustainability components, study in 75 companies which represent 14
including; governance, economy, industries to identify the current social
environment, and society in Sri Lankan responsibility reporting framework. GRI
companies (Wijesinghe, 2012). The scholar guidelines were used in this study and found
found that the Return on sales (ROS), Return a low level of disclosures in sustainability
on asset (ROA), and Return on equity (ROE) components including; governance, economy,
have a significant impact on sustainability, environment, and society in Sri Lankan
and it shows a positive link between corporate companies.
financial performance and sustainability.
However, there is literature lacking in the Sri
Moreover, Pan et al. (2014) concluded that Lankan context. Therefore, the study
sustainability, even though it appears to have contributing to the literature to fill the gap by
no significant impact on the growth rate or performing content analysis and considering
expansion rate of net assets, may positively the potential relationship between
impact a firm's profits. Overall, the authors sustainability disclosures and the firms'
found that sustainability had significant financial performance in Sri Lanka.
effects on ROA, ROE, and Earnings per Share
Hypotheses formed based on research
EPS. The 250 observation is acceptable
questions and research objectives to
theoretically as much previous research has
investigate the relationship between
used less observation than this
sustainability reporting and a firm's financial
(Bhattacharyya, 2014).
performance. To answer the research
The indicators of economic activities, social questions of this study, the following
activities and environmental activities of CSR hypothesis is formulated based on the
have significant negative impact on Tobin's literature review:
Q. However, the CSR have not been practiced
H1: There is a significant relationship
by larger number of companies in Sri Lanka
between sustainability reporting and the
(Kengatharan et al., 2020). Dissanayake, et
Financial Performance of Listed Companies
al., (2016) examined the relationship between
in the CSE.
sustainability reporting /sustainability key
performance indicator (KPI) reporting and RESEARCH METHODS
company-specific characteristics namely;
company size, company age and financial Target Population, Sample, and Sampling
performance using annual reports, Technique
sustainability reports and website contents of The population of this study consisted of all
sixty public listed companies in Sri Lanka and listed companies in CSE during 2018/2019.
found that company size as the most Sekaran (2000) defined the sample as a subset
significant factor that effect on sustainability of the population in question and consisted of
KPIs). In contrast to Wijesinghe (2012) large- selecting members from the particular
scale corporations disclosed high level of population. This study selects 102 listed
disclosures to exploit performance benefits. companies randomly from 20 sectors. The
The commitments towards implementing proportionate stratified random sampling
voluntary reporting practices in a developing method is applied to select the 102 listed
country like Sri Lanka can be influenced by companies as the sample for the study.
the absence of a fixed model, recognized According to Alvi (2016), the stratum's
listing platform and the cost (De Silva P O proportionate stratified random sample size is
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defined proportionally to the number of indicators will be measured by perceived
elements present in the stratum. Figure 1 responses of various sustainability reports.
shows the sample of 102 companies The return on assets will be measured by the
calculated at the 95% confidence level and calculation of the ratio using annual reports of
5% confidence interval from the total companies. The control variable is to be the
population of 138 companies disclosed in the firm size.
sustainability report in the annual report. The
This research then focuses on disclosing items
following equation is applied for sample
in the Company's sustainability reporting that
selection (Surveysystem, 2021)
are examined based on the GRI-G4 index.
Based on GRI 2016, standard disclosure and
Sample
Each selected sector performance indicators are used to indicate
= X Total Sample (102) sustainability categories. According to that,
Population (138) there are 13 economic disclosures, 30
environmental disclosures, and 40 social
disclosures criteria were designed for
performance measurement based on
requirements from the modification of GRI.
Since Sri Lanka still lacks in a few areas of
sustainability.
Measurement of Variables
The conceptual model developed and
supports the existence of a causal relationship
between sustainability reporting and financial
Figure 1: Sample size performance. Sustainability Reporting and its
impact on Firms Financial Performance have
Method of Data Collection emerged as important areas for research in
This study is based on secondary data recent years.
collected from the annual report published by Empirical studies have used different
the CSE for 2018/2019. The reason for measures of financial performance (FP) to
selecting these companies is that these link CSR and FP. Indeed, Griffin and Mahon,
companies' financial statements are based on 51 studies, identified 80 financial
compulsorily audited by recognized audit measures of corporate performance. Amongst
companies. Secondary data were collected them, return on sales (ROS), Return on Equity
through paper-based sources as well as from (ROE), and return on assets (ROA)or market-
electronic-based sources and research based measures, such as market value to book
journals and articles. Some of these sources value and price to earnings ratio and market
are Emerald articles and journals, books on return, have been used widely. While the
sales and marketing. Further, the information latter predicts long-term, the former captures
on financial performance is also collected short-term financial performance. In line with
through financial statements in the companies' these studies, the present study adopted
annual reports. The G4 frame work and GRI Return on Assets (ROA); return on Equity
contents were gathered from the annual (ROE); return on Sales (ROS).
reports. The data and information required for
this study collected from the annual reports in The dependent variable used as a measure of
Colombo stock exchange (CSE) websites by company performance is the return on assets
referring to annual financial reports. (ROA). Return on asset is one of the
profitability ratios which measures the
The concept of sustainable measure is income or operating success of a company for
indicated with Economic measures, a given period (Weygandt, 2007, p. 793).
Environmental measures, and Social ROA computes as;
measures. Return indicates the concept of
financial performance on Asset. The impact
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Net profit used to analyze the data generated are
ROA =
Total Assets Descriptive Statistics, Regression, and
Correlation. It is consistent with the work of
Some of the indicators are merged with Chtourou et al. (2001). Pearson correlation
related indicators. Clarkson et al. (2008) coefficient is the most commonly used
Toms, (2002) and Van Staden & Hooks coefficient. It is the method that measures
(2007) developed a 5-point scale to assess the both the degree (strength) of association and
quality of disclosure, this quality scale as the direction of variables. Moreover, the
following, Statistical Package for Social Sciences
Version 22 (SPSS 22) is used to analyze the
Scale Description data.
0 No disclosure The model used the multiple regression
1 Specific endeavor in non- method. The equation is presented below:
quantitative terms
Y = a + b1X1 + b2X2 + b3X3 + b4X4 + e
2 Quantified performance data
3 Quantified performance data where:
relative to benchmarks Y = ROA (Return on Assets)
4 Quantified performance data at the a = constant
disaggregated level b1-3 = regression coefficient
X1 = Economic disclosure
The control variable used as a measure of firm X2 = Environmental disclosure
size is total assets (TA). This control variable, X3 = Social disclosure
which has been included and examined in X4 = Firm Size
prior research, is firm size. Firm size is used
as a control variable in many studies relating FINDINGS AND DISCUSSION
to CSP and firm performance (Lo, S. F., & The data analysis to study the application of
Sheu, H. J., 2007; Hussain, 2015; King and sustainable measures in Sri Lankan listed
Lenox, 1998). Therefore firm size is identified
firms, Univariate analysis (descriptive
as the control variables of the study.
statistic), Bivariate (correlation), and
This research proposes the models of the multivariate test have been adopted using the
independent variable is sustainability SPSS (22.0) computer package. Data
performance disclosures. Sustainability presentation has been done by using tables
reports involve disclosure on a company's and charts.
sustainability performance viewed from three
aspects; they are economic, environmental, Data Presentation
and social disclosures.
Descriptive Analysis of Economical
GRI Sustainability Guidelines on Economic, Disclosure
Environmental, and Social Performance is the
most prominent current reporting guideline To find out the average level of economical
(Morhardt et al. 2002). Research conducted disclosure among sample firms, the
by Dincer (2011) also suggests adopting the researcher analyzed the economical
GRI format as a CSR reporting model to be disclosure practices by using descriptive
used by the firm for disclosing information. statistics of the mean and standard deviation
of economical disclosure of firms.
DATA ANALYSIS
As shown in above Table 1, the overall mean
Data analysis is done by using statistical value of economical disclosure among sample
techniques to evaluate individual firms is 0.82, and it can be varied by 0.57.
characteristics of variables, assessing the Based on the mean value of economical
status of variables, relationship, and impact of disclosure, economical disclosure among
variables which are mentioned as objectives sample firms is low level.
of the study. For this study, the techniques
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As shown in above Table 5, the overall mean child labor (0.51), forced or compulsory labor
value of social disclosure among sample (0.60), security practices (0.33), rights of
firms is 0.65, and it can be varied by 0.29. indigenous peoples (0.19), human rights
Based on the mean value of social disclosure, assessment (0.26), local communities (0.86),
social disclosure among sample firms is low supplier social assessment (0.52), public
level. When considering the dimension of policy (0.27), customer health and safety
social disclosure, it is found that mean value (0.66), marketing and labeling (0.66),
for employment (1.04), labor-management customer privacy (0.62) and socioeconomic
relations (0.50), occupational health and compliance (0.81) shows low level while the
safety (0.35), diversity and equal opportunity mean value for training and education (1.59)
(0.82), non-discrimination (0.70), freedom of indicates moderate level among sample firms.
association and collective bargaining (0.45),
Table 6: Overall No of Companies Level of Social Disclosure
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Table 11: Model Summary
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
(Constant) .048 .066 .730 .467
Economic
.021 .010 .180 2.135 .035
Disclosure
1 Environmental
.058 .020 .232 2.913 .004
Disclosure
Social Disclosure .114 .018 .499 6.388 .000
Firm Size -.006 .003 -.143 -2.038 .044
a. Dependent Variable: Return on Assets
Source: Sample Survey
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The table illustrated constant statistic is dimensions which are economic performance,
0.048 units show that the model would market presence, indirect economic impacts,
predict if all of the three independent procurement practices, anti-corruption, and
variables were Zero. The β coefficient for anti-competitive behavior. Indicators of
Economic Disclosure is 0.021. This result economic performance are direct economic
explains that on average, if Economical value generated and distributed, financial
implications and other risks and opportunities
Disclosure increases, ROA will increase by
due to climate change, defined benefit plan
0.021 units. The β coefficient for
obligations, and other retirement plans and
Environmental Disclosure is 0.058. This financial assistance received from the
result explains that on average, if government with a mean value of 1.86, 1.65,
Environmental Disclosure increases, ROA 1.26 and 0.61 respectively with the standard
will improve by 0.058 units. The β deviation of 0.75, 0.95, 1.17 and 0.88
coefficient for Social Disclosure is 0.114. correspondingly and overall mean value of
This result explains that on average, if Social economic performance is 1.35 which is
Disclosure increase, ROA will increase by deviated from 0.63. This indicated that
0.114 units. economic performance indicates a low level
among selected Sri Lankan firms.
Based on the table, the equation for the
regression line is, Indicators of market presence are ratios of
standard entry level wage by gender
ROA = 0.048 + 0.021 (ECO) + 0.058 (ENV) compared to local minimum wage and
+ 0.114 (SOC) – 0.006(Fsize)+ e proportion of senior management hired from
the local community with the mean value of
H1: There is a significant relationship 0.39 and 1.00 respectively with the standard
between sustainability reporting and deviation of 0.76 and 1.11 correspondingly
the Financial Performance of Listed and overall mean value of market presence is
Companies in the CSE. 0.70 which is deviated from 0.73. This
The sustainability reporting has an impact on indicated that the market presence indicates a
the financial performance of companies in low level among selected Sri Lankan firms.
Sri Lanka. The economic, environmental, Indicators of indirect economic impacts are
and social sustainability reporting positively the development of infrastructure and service
impacts companies' financial performance in supported and significant indirect economic
Sri Lanka, especially ROA. Therefore, the impacts with the mean value of 0.79 and 0.49
study accepts the hypothesis because the P- respectively with the standard deviation of
value is less than 0.05 coefficient value is 1.10 and 0.83 correspondingly and overall
positive. mean value of indirect economic impacts is
0.64 which is deviated from 0.85. This
Further, the disclosure of economics, indicated that the indirect economic impacts
environmental, social disclosures, and firm display at a low level among selected Sri
size has a significant impact on the Lankan firms.
company's financial performance. The p- Indicators of procurement practices are the
value less the 0.05 that the disclosure of each proportion of spending on local suppliers with
aspect of economic, environmental, and a mean value of 0.64 with a standard deviation
social disclosures and the firm size of the of 0.98. So, the mean value of procurement
company will increase the firm's financial practices is 0.64 which is deviated from 0.98.
performance in the future. This indicated that the procurement practices
display at a low level among selected Sri
Discussion on Descriptive Statistics Lankan firms.
Level of Economic Disclosures Indicators of anti-corruption are operations
Economic disclosures are the independent assessed for risks related to corruption,
variable of this study. It consists of six communication and training on anti-
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corruption policies and procedures and consumption with the mean value of 0.64,
confirmed incidents of corruption and actions 0.63, and 0.50 respectively with the standard
are taken with a mean value of 0.39, 0.43, and deviation of 0.77, 0.77, and 0.74
0.62 respectively with the standard deviation correspondingly, an overall mean value of
of 0.79, 0.83, and 0.92 correspondingly and water and effluents is 0.59 which is deviated
overall mean value of anti-corruption is 0.48 from 0.67. This indicated that water and
which is deviated from 0.68. This indicated effluents indicate at a low level among
that the anti-corruption displays at a low level selected Sri Lankan firms.
among selected Sri Lankan firms.
Indicators of biodiversity are operational sites
Indicators of anti-competitive behavior are owned, leased, managed in, or adjacent to,
legal action for anti-competitive behavior, protected areas and areas of high biodiversity
anti-trust and monopoly practices with a mean value outside protected areas, significant
value of 0.56 with the standard deviation of impacts of activities, products, and services
0.89. So, the mean value of anti-competitive on biodiversity, habitats protected or restored,
behavior is 0.56 which is deviated from 0.89. and IUCN Red List species and national
This indicated that anti-competitive behavior conservation list species with habitats in areas
displays at a low level among selected Sri affected by operations with the mean value of
Lankan firms. 0.28, 0.22, 0.26 and 0.21 respectively with the
standard deviation of 0.57, 0.50, 0.44 and 0.41
Level of Environmental Disclosures
correspondingly and overall mean value of
Environmental disclosures are the biodiversity is 0.24 which is deviated from
independent variable of this study. It consists 0.35. This indicated that biodiversity indicates
of eight dimensions which are materials, at a low level among selected Sri Lankan
energy, water and effluents, biodiversity, firms.
emissions, effluents and waste, environmental
Indicators of emissions are direct (Scope 1)
compliance, and supplier environmental
GHG emissions, energy indirect (Scope 2)
assessment. Indicators of materials are
GHG emissions, other indirect (Scope 3)
materials used by weight or volume, recycled
GHG emissions, GHG emissions intensity,
input materials used, and reclaimed products
reduction of GHG emissions, emissions of
and their packaging materials with a mean
ozone-depleting substances (ODS) and
value of 0.40, 1.22, and 1.06 respectively with
nitrogen oxides (NOX), sulfur oxides (SOX),
the standard deviation of 0.76, 0.78, and 0.78
and other significant air emissions with the
correspondingly and overall mean value of
mean value of 0.98, 0.59, 0.57, 0.42, 0.25,
materials is 0.89 which is deviated from 0.48.
0.34 and 0.48 respectively with the standard
This indicated that the materials indicate at a
deviation of 0.74, 0.75, 0.71, 0.60, 0.50, 0.50
low level among selected Sri Lankan firms.
and 0.66 correspondingly and overall mean
Indicators of energy are energy consumption value of emissions is 0.52 which is deviated
within the organization, energy consumption from 0.35. This indicated that emissions
outside of the organization, energy intensity, indicate at a low level among selected Sri
reduction of energy consumption, and Lankan firms.
reductions in energy requirements of products
Indicators of effluents and waste are water
and services with the mean value of 1.32,
discharge by quality and destination, waste by
0.79, 0.64, 0.64, and 0.39 respectively with
type and disposal method, significant spills,
the standard deviation of 0.75, 0.81, 0.81,
transport of hazardous waste, and water
0.81, 0.78 and 0.58 correspondingly and
bodies affected by water discharges and/or
overall mean value of energy is 0.76 which is
runoff with the mean value of 0.66, 0.79,
deviated from 0.48. This indicated that energy
0.57, 0.53 and 0.64 respectively with the
indicates a low level among selected Sri
standard deviation of 0.75, 0.83, 0.73, 0.70
Lankan firms.
and 0.70 correspondingly and overall mean
Indicators of water and effluents are water value of effluents and waste is 0.64 which is
withdrawal, water discharge, and water deviated from 0.51. This indicated that
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effluents and waste indicate at a low level Indicators of labor-management relations are
among selected Sri Lankan firms. minimum notice periods regarding
operational changes with a mean value of 0.50
Indicators of environmental compliance are
with a standard deviation of 0.66. So, the
non-compliance with environmental laws and
mean value of labor-management relations is
regulations with a mean value of 0.63 with a
0.50 which is deviated from 0.66. This
standard deviation of 0.69. So, the mean value
indicated that labor-management relations
of environmental compliance is 0.63 which is
display at a low level among selected Sri
deviated from 0.69. This indicated that
Lankan firms.
environmental compliance displays at a low
level among selected Sri Lankan firms. Indicators of occupational health and safety
are occupational health and safety
Indicators of supplier environmental
management system, hazard identification,
assessment are new suppliers that were
risk assessment, and incident investigation,
screened using environmental criteria and
occupational health services, worker
negative environmental impacts in the supply
participation, consultation, and
chain and actions taken with the mean value
communication on occupational health and
of 0.28 and 0.29 respectively with the
safety, worker training on occupational health
standard deviation of 0.60 and 0.59
and safety, promotion of worker health,
correspondingly and overall mean value of
prevention and mitigation of occupational
supplier environmental assessment is 0.29
health and safety impacts directly linked by
which is deviated from 0.50. This indicated
business relationships, workers covered by an
that supplier environmental assessment
occupational health and safety management
indicates at a low level among selected Sri
system, work-related injuries and work-
Lankan firms.
related ill health with the mean value of 0.38,
Level of Social Disclosures 0.67, 0.30, 0.34, 0.25, 0.22, 0.25, 0.53, 0.45
and 0.16 respectively with the standard
It consists of social disclosure has nineteen deviation of 0.65, 0.84, 0.54, 0.57, 0.43, 0.44,
dimensions which are employment, labor-
0.73, 0.73 and 0.39 correspondingly and
management relations, occupational health
overall mean value of occupational health and
and safety, training and education, diversity
safety is 0.35 which is deviated from 0.34.
and equal opportunity, non-discrimination,
This indicated that occupational health and
freedom of association and collective safety indicates at a low level among selected
bargaining, child labor, forced or compulsory Sri Lankan firms.
labor, security practices, rights of indigenous
peoples, human rights assessment, local Indicators of training and education are
communities, supplier social assessment, average hours of training per year per
public policy, customer health and safety, employee, programs for upgrading employee
marketing and labeling, customer privacy and skills and transition assistance programs, and
socioeconomic compliance. Indicators of percentage of employees receiving regular
employment are new employee hires and performance and career development reviews
employee turnover, benefits provided to full- with the mean value of 1.66, 1.72, and 1.41
time employees that are not provided to respectively with the standard deviation of
temporary or part-time employees, and 0.67, 0.57 and 0.81 correspondingly and
parental leave with a mean value of 1.65, 1.65, overall mean value of training and education
and 0.91 respectively with the standard is 1.59 which is deviated from 0.56. This
deviation of 0.71, 0.77, and 0.95 indicated that training and education indicate
correspondingly and overall mean value of at a moderate level among selected Sri
employment is 1.40 which is deviated from Lankan firms.
0.56. This indicated that the employment
Indicators of diversity and equal opportunity
indicates at a low level among selected Sri
are the diversity of governance bodies and
Lankan firms.
employees and ratio of basic salary and
remuneration of women to men with the mean
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value of 1.02 and 0.63 respectively with the practices display at a low level among
standard deviation of 0.86 and 0.81 selected Sri Lankan firms.
correspondingly and overall mean value of
Indicators of rights of indigenous peoples are
diversity and equal opportunity is 0.82 which
incidents of violations involving rights of
is deviated from 0.67. This indicated that
indigenous peoples with a mean value of 0.19
diversity and equal opportunity indicates at a
with a standard deviation of 0.44. So, the
low level among selected Sri Lankan firms.
mean value of rights of indigenous peoples is
Indicators of non-discrimination are incidents 0.19 which is deviated from 0.44. This
of discrimination and corrective actions taken indicated that the rights of indigenous peoples
with a mean value of 0.70 with a standard display at a low level among selected Sri
deviation of 0.78. So, the mean value of non- Lankan firms.
discrimination is 0.70 which is deviated from
Indicators of human rights assessment are
0.78. This indicated that non-discrimination
operations that have been subject to human
displays at a low level among selected Sri
rights reviews or impact assessments,
Lankan firms.
employee training on human rights policies or
Indicators of freedom of association and procedures and significant investment
collective bargaining are operations and agreements and contracts that include human
suppliers in which the right to freedom of rights clauses or that underwent human rights
association and collective bargaining may be screening with the mean value of 0.22, 0.28
at risk with a mean value of 0.45 with the and 0.29 respectively with the standard
standard deviation of 0.61. So, the mean value deviation of 0.44, 0.48 and 0.48
of freedom of association and collective correspondingly and overall mean value of
bargaining is 0.45 which is deviated from human rights assessment is 0.26 which is
0.61. This indicated that freedom of deviated from 0.39. This indicated that human
association and collective bargaining displays rights assessment indicates at a moderate level
at a low level among selected Sri Lankan among selected Sri Lankan firms.
firms.
Indicators of local communities are
Indicators of child labor are operations and operations with local community
suppliers at significant risk for incidents of engagement, impact assessments and
child labor with a mean value of 0.51 with a development programs and operations with
standard deviation of 0.66. So, the mean value significant actual and potential negative
of child labor is 0.51 which is deviated from impacts on local communities with the mean
0.66. This indicated that child labor displays value of 1.14 and 0.59 respectively with the
at a low level among selected Sri Lankan standard deviation of 0.72 and 0.65
firms. correspondingly and overall mean value of
local communities is 0.86 which is deviated
Indicators of forced or compulsory labor are
from 0.55. This indicated that local
operations and suppliers at significant risk for
communities indicate at a low level among
incidents of forced or compulsory labor with
selected Sri Lankan firms.
a mean value of 0.60 with a standard deviation
of 0.69. So, the mean value of forced or Indicators of supplier social assessment are
compulsory labor is 0.60 which is deviated new suppliers that were screened using social
from 0.69. This indicated that forced or criteria and negative social impacts in the
compulsory labor displays at a low level supply chain and actions taken with the mean
among selected Sri Lankan firms. value of 0.60 and 0.44 respectively with the
standard deviation of 0.66 and 0.59
Indicators of security practices are security
correspondingly and overall mean value of
personnel trained in human rights policies or
supplier social assessment is 0.52 which is
procedures with a mean value of 0.33 with a
deviated from 0.54. This indicated that
standard deviation of 0.57. So, the mean value
supplier social assessment indicates a low
of security practices is 0.33 which is deviated
level among selected Sri Lankan firms.
from 0.57. This indicated that security
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Indicators of public policy are political compliance displays at a low level among
contributions with a mean value of 0.27 with selected Sri Lankan firms.
a standard deviation of 0.49. So, the mean
Discussion on Correlation Analysis
value of the public policy is 0.27 which is
deviated from 0.49. This indicated that public This study was conducted to examine and
policy displays at a low level among selected obtain empirical evidence about the impact of
Sri Lankan firms. sustainability reporting on a firm’s financial
performance of the companies. The results
Indicators of customer health and safety are
obtained from regression analysis and
an assessment of the health and safety impacts
correlation matrix show mixed results; the
of product and service categories and
overall sustainability disclosures are
incidents of non-compliance concerning the
positively impacted by the firm’s financial
health and safety impacts of products and
performance.
services with the mean value of 0.54 and 0.77
respectively with the standard deviation of The Economical Disclosure and ROA show a
0.62 and 0.82 correspondingly and overall strong positive relationship with r=0.512.
mean value of customer health and safety is Further, the Medium positive relationship of
0.66 which is deviated from 0.60. This the Environmental Disclosure and ROA with
indicated that customer health and safety r=0.462 and the r=0.633 indicates the
indicate at a low level among selected Sri moderate positive relationship between Social
Lankan firms. Disclosure and ROA.
Indicators of marketing and labeling are Discussion on Multiple Regression
requirements for product and service Analysis
information and labeling, incidents of non-
The bivariate correlation of coefficient (R) is
compliance concerning product and service
0.728. It is indicating a moderate positive
information and labeling, and incidents of
non-compliance concerning marketing relationship between sustainable reporting
communications with the mean value of 0.54, (economic disclosures, environmental
disclosures, and social disclosures, and firm
0.70, and 0.75 respectively with the standard
size) and financial performance in listed
deviation of 0.66, 0.81 and 0.84
companies.
correspondingly and overall mean value of
marketing and labeling is 0.66 which is Determinants of coefficient (R2) is 0.530
deviated from 0.67. This indicated that indicates that for the sample 53% of the
marketing and labeling and safety indicates a variation of the dependent variable of
low level among selected Sri Lankan firms. financial performance can be explained by the
independent variables of sustainable reporting
Indicators of customer privacy are
(economic disclosures, environmental
substantiated complaints concerning breaches
disclosures, social disclosures, and firm size).
of customer privacy and losses of customer
data with a mean value of 0.62 with a standard Based on Table 13, the regression equation
deviation of 0.73. So, the mean value of can be written as follows:
customer privacy is 0.62 which is deviated
from 0.73. This indicated that customer Y = 0.048+ 0.021 X1 + 0.058 X2 + 0.114 X3 –
privacy displays at a low level among selected 0.006 X4 + e
Sri Lankan firms. Where
Indicators of socioeconomic compliance are
Y - Financial Performance
non-compliance with laws and regulations in
X1- Economic Disclosures
the social and economic area with a mean
X2 - Environmental Disclosures
value of 0.81 with a standard deviation of
X2 - Social Disclosures
0.78. So, the mean value of socioeconomic
compliance is 0.81 which is deviated from X4 – Firm Size
0.78. This indicated that socioeconomic
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The B coefficient for economic disclosures is Impact on Financial Performance of the study
0.021, which means that when economic confirms that there is no improvement in the
disclosures are increased by one unit, level of economic, environmental, and social
financial performance will increase by 0.021 disclosures over the period of time. (Silva,
units. It also indicates that the B coefficient 2019).
for environmental disclosures is 0.058, which
CONCLUSIONS AND FUTURE
means that when environmental disclosures
RESEARCH DIRECTIONS
are increased by one unit, financial
performance will increase by 0.058. It also The finding of this study contributes to a
indicates that the B coefficient for social better understanding of the research objective.
disclosures is 0.114, which means that when The study's main objective is to identify the
social disclosures are increased by one unit, present level of sustainability reporting and
financial performance will increase by 0.114. financial performance of listed companies in
Sri Lanka. The result obtained from the
According to regression analysis, economic
descriptive analysis can conclude that under
disclosure, environmental disclosures, and
the variables of sustainability reporting, that
social disclosures positively impact financial
are economic disclosure, environmental
performance in listed companies.
disclosure, and social disclosure.
Furthermore, the previous studies found the
environmental performance indicators Further, examining the relationship between
depicted mixed results depicted a mere the sustainability reporting and the financial
positive correlation, and regression was performance of the listed companies in Sri
significant (Gnanaweera & Kunori, 2018). Lanka, the result have been obtained through
The study was conducted to examine and correlation and regression analysis to examine
obtain empirical evidence about the effects of the relationship and impact of sustainability
Sustainability Report disclosure on the disclosure of economic, environmental, and
financial performance of companies that social disclosure variables on Financial
include ROA, CR, DER, IT, and DPR. performance of ROA.
(Nugroho & Arjowo, 2014). Which showed
The first question is to find out the current
any indication of the positive direction of the
level of Sustainability Reporting Disclosure
outcomes of the SR disclosure levels, which
of listed companies in Sri Lanka. According
means more SR disclosure, the higher
profitability values. The impact of to the analysis done through descriptive and
sustainability on profitability tends to be correlation findings, the correlation shows
with the impact of Return on the Assets; it
stronger than the reciprocal influence
could be identified that there is a moderate
generated from profitability; thus, this may
positive relationship with economic
imply an influence that varies following time.
disclosures, environmental disclosures, and
A sustainability-driven policy exists among
the higher performers’ group. (Chang & social disclosures. The second question is to
Regina Kuo, 2008). An author such as determine the impact of Sustainability
Reporting on the Financial Performance of
Relatore & Laureando (2014) argued in
listed companies in Sri Lanka. With the
support of the Score variables by category are
analysis done to identify the performance
positively correlated with ROA. It means that
they could be significant in the panel impact, there is a moderate positive
regression, displaying and explaining a sort of relationship between sustainable reporting of
economic disclosures, environmental
positive impact on this corporate financial
disclosures, and social disclosures, and firm
performance indicator. The research was
size and financial performance in listed
designed to find the environmental disclosure
companies.
practice of listed companies in Sri Lanka. The
Researchers found that majority of companies With the significant impact of sustainability
disclosed less information and the average disclosures on the Return on the Assets, it
disclosure rate of selected companies is at a could be identified that there is a moderate
significantly lower level. (Aruppala et al., positive relationship with the variable and a
2013). Sustainability Reporting and Its
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moderate positive impact. As the reporting. These GRI guidelines indicate
sustainability performance increases, the moving towards sustainability
Return on Asset will also increase. Thus, it
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