Business Sustainability Factors of Performance, Risk, and Disclosure by Zabihollah Rezaee

Author:Zabihollah Rezaee
Language: eng
Format: epub
Publisher: Business Expert Press
Published: 2021-02-22T00:00:00+00:00

Importance and Relevance of ESP and EESG Dimensions of Sustainability Performance

The integration of sustainability performance dimensions into corporate culture, business environment, and managerial strategic decisions can create sustainable performance and thus shared value for all stakeholders. The integration of the financial ESP and nonfinancial EESG dimensions of sustainability performance into managerial strategies and practices enables companies to conserve scarce resources, optimize production processes, identify product innovations, achieve cost efficiency and effectiveness, increase productivity, and promote corporate reputation. The report also encourages companies to engage their suppliers in the establishment of more sustainable practices and integration of sustainability into their supply chain processes. However, these sustainability activities may require considerable resource allocation that could conflict with shareholder wealth maximization objectives and forces management to solely invest in sustainability initiatives that would result in long-term financial sustainability.

Theoretically, managements’ engagement in nonfinancial EESG sustainability activities, performance, and disclosure can be viewed as value-increasing or value-decreasing for investors. On one hand, companies that effectively manage their business sustainability improve EESG performance, enhance their reputation, fulfill their social responsibility, and promote a corporate culture of integrity and competency. On the other hand, companies can only survive and generate sustainable performance when they continue to generate profits and create shareholder value. Nonetheless, financial and nonfinancial EESG sustainability performance and disclosures supplement each other and are not mutually exclusive. Companies with effective governance, social and environmental responsibility, and high standards of ethics are expected to produce sustainable performance, create shareholder value, and gain investor confidence and public trust. Sustainability has gained the attention of global financial institutions and investors as they began to consider how EESG risks affect their investment portfolio value. A proper understanding of sustainability theories, standards, risk assessment, and performance has been a major challenge for companies in measuring, recognizing, and disclosing both financial ESP and nonfinancial EESG dimensions of their sustainability performance and for corporate stakeholders (including shareholders) in effectively using sustainability performance information in their investment valuations and portfolio analysis.

The proper establishment and implementation of business sustainability requires identification of all stakeholders and integration of all dimensions of sustainability performance to managerial processes. Companies should use a principles-based approach in integrating both financial ESP and nonfinancial EESG sustainability information into their managerial processes from purchasing and inbound logistics, production design, and manufacturing process to distribution, outbound logistics, customer services, and social and environmental initiatives. However, these sustainability activities may require considerable resource allocation that could conflict with shareholder wealth maximization objectives and forces management to solely invest in sustainability initiatives that would result in long-term financial sustainability.

Business sustainability enables management to focus on long-term and enduring financial and nonfinancial performance and disclose high-value and forward-looking information to all stakeholders. Under business sustainability management, managers can gather and use relevant financial ESP and nonfinancial EESG information for planning and forecasting purposes. At the same time, they can focus on and improve the related metrics that drive the business. Through business sustainability, management can better focus on sustainable value-deriving activities and use sustainability information

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