Document Type : Research Paper

Author

• Javad Shekarkhah

Assistant professor of Accounting in department of management and Accounting Allameh tabataba'i university

Abstract

The growing significance of sustainability reporting, as one of the most recent and pivotal trends in the transformation of corporate reporting, has led to a substantial increase in research in this field. Accordingly, this study conducts a systematic review of research examining the effect of sustainability reporting on financial performance. The final sample comprises 95 articles indexed in the Scopus and Web of Science databases, covering the period from 2013 to the end of June 2025. The PRISMA checklist was employed to develop the review protocol. The findings indicate that 70% of the studies report a positive impact of sustainability reporting on ROA, 64% demonstrate a positive effect on ROE, and 72% show a positive influence on market-based performance metrics (such as Tobin's Q and the market-to-book value ratio). These results suggest a relative consensus regarding the positive impact of sustainability reporting on corporate performance. Additionally, the findings reveal that contextual factors and moderating variables, such as the level of economic development, corporate governance, ESG investors, GRI standards, and levels of transparency, can influence this relationship. Furthermore, the study highlights that different components of ESG disclosures may have varying impacts on corporate performance, although research outcomes in this regard are highly heterogeneous. Collectively, the reviewed studies suggest that sustainability reporting is not merely a regulatory requirement but a strategic asset for enhancing financial performance, underscoring the need for companies to develop long-term strategies for implementing sustainability reporting.

Introduction

In recent decades, corporate performance has been defined as a measure of a firm's effectiveness in utilizing limited resources to create value. In the context of value creation, companies strive to achieve sufficient returns while meeting the expectations of relevant stakeholders (Brundtland, 1987). In the current era, investors increasingly consider not only financial reports but also non-financial disclosures to better inform their investment decisions. Sustainability reporting, which enhances transparency, enables investors to make more informed and well-founded investment choices (Leins, 2020). Environmental, social, and governance (ESG) issues and sustainability are closely intertwined concepts that have garnered significant attention in recent years due to the need to address global challenges and promote responsible business practices. Sustainability reporting is defined as a set of activities undertaken by organizations to provide evidence of the integration of social and environmental considerations into corporate operations and interactions with stakeholders. The concept of sustainability reporting emerged in the early 1980s with the advent of environmental reporting (Aifuwa, 2020).
The academic literature suggests that engaging in corporate social responsibility (CSR) activities not only enhances relationships with stakeholders and the broader community but also differentiates companies in competitive markets, fostering trust and maximizing value (Ameer & Othman, 2012; Van Linh et al., 2022). In recent years, sustainability reporting has garnered significant attention as companies, investors, and consumers increasingly prioritize sustainability. Sustainability is defined as meeting present needs without compromising the ability of future generations to meet their own needs. As companies strive to maintain their market position amid rapidly evolving business environments, it has become evident that a sole focus on financial performance is no longer sufficient. Sustainability performance and disclosure have become increasingly critical for achieving competitive success (Hahn & Kühnen, 2013).
A substantial body of research has explored the relationship between sustainability and corporate performance, yielding varied results ranging from positive to insignificant or negative outcomes (Rodgers et al., 2019). The literature on the relationship between sustainability reporting and corporate financial performance has produced conflicting findings, with prior studies indicating that results are so diverse that definitive conclusions remain elusive (Nguyen et al., 2025). Given these considerations, the challenges associated with sustainability and corporate performance have attracted growing attention from researchers and practitioners, leading to a significant increase in related publications. Several studies have sought to synthesize this extensive literature, employing bibliometric analysis and systematic reviews to gain a comprehensive understanding of the field, identify knowledge gaps, explore new ideas, and position their contributions within the existing body of research. While bibliometric analyses and systematic reviews on sustainability and its reporting have proliferated, few studies have specifically focused on the relationship between sustainability reporting and corporate performance.
A review of the literature reveals that systematic reviews of the relationship between sustainability reporting and performance have received limited attention. Recent studies have primarily focused on bibliometric analyses to identify trends and key patterns in this field, without providing a comprehensive synthesis or analysis of the key findings of relevant research. Given the increasing importance of sustainability reporting as one of the latest transformative trends in corporate reporting, this study undertakes a systematic review of research examining the impact of sustainability reporting on financial performance.

Methodology

This research is classified as applied and exploratory in terms of its objectives and aligns with the interpretive paradigm and a qualitative research methodology. Consistent with the research objectives, a systematic review method was employed for data collection, and an inductive content analysis approach was used to analyze the selected studies. The latest version of the PRISMA checklist (2020) was utilized to develop the review protocol. The search for articles was conducted in two reputable academic databases, Scopus and Web of Science. The research period was set from 2013 to the end of June 2025. To enhance the sensitivity and comprehensiveness of the search, equivalent and related keywords for the two main terms, "sustainability reporting" and "corporate financial performance," were used in combination with the Boolean operator "OR." The search was limited to English-language, peer-reviewed journal articles. The retrieved articles were imported into the Zotero software based on the search protocol and subjected to multiple screening stages. Initially, duplicate articles from both databases were removed. Subsequently, articles relevant to the research topic and objectives were selected based on their titles. In the next stage, articles were screened based on their abstracts. Finally, after a full-text review, 95 studies were retained for analysis.

Results

The systematic review of the studies indicates that a substantial majority of the examined research supports a positive relationship between sustainability reporting and both accounting-based performance measures (return on assets and return on equity) and market-based performance measures (Tobin's Q and market-to-book value ratio). Specifically, 70% of the studies report a positive impact of sustainability reporting on return on assets, 64% indicate a positive effect on return on equity, and 72% demonstrate a positive influence on market-based performance indicators. These positive findings are consistent with established theoretical frameworks, including signaling theory, legitimacy theory, and stakeholder theory. According to signaling theory, market signals that reduce information asymmetry assist investors in making more informed decisions. Sustainability reporting enables firms to transmit positive signals to the market, thereby reducing information asymmetry and potentially enhancing firm value. Furthermore, legitimacy theory posits that firms operate with the implicit approval of society and must continuously demonstrate their legitimacy to avoid the loss of social support. In this context, companies may disclose additional information to maintain legitimacy, which can ultimately lead to higher firm value. Consequently, firms that engage in sustainability reporting can reinforce their legitimacy and enhance value creation. Similarly, stakeholder theory suggests that a firm’s survival depends on its ability to meet the expectations of its stakeholders. This perspective emphasizes that firms must engage in corporate social responsibility activities, beyond the sole objective of maximizing shareholder wealth, to address the interests of non-financial stakeholders who can provide critical resources and support. Overall, these findings provide empirical support for signaling, legitimacy, and stakeholder theories and underscore the importance of policymakers encouraging or mandating sustainability reporting disclosures to enhance market transparency and efficiency.

Conclusion

Based on the consistent evidence of a positive relationship between sustainability reporting on financial performance, the reviewed studies provide important implications for both policymakers and corporate managers. Several studies suggest that sustainability reporting can function as an effective risk mitigation mechanism, particularly in uncertain and volatile business environments. Accordingly, sustainability reporting is framed not merely as a regulatory obligation but as a strategic resource capable of enhancing financial performance. Firms are therefore encouraged to develop long-term strategies for the implementation of sustainability reporting. From a policy perspective, governments are urged to strengthen and refine existing regulatory frameworks to establish a robust foundation for sustainability reporting practices. Collectively, these studies strongly support the view that corporate sustainability disclosure constitutes a strategic tool for increasing firm value and sustaining competitive advantage. Another key implication emerging from the literature concerns the role of regulation in improving transparency and corporate performance. Empirical evidence indicates that adherence to the Global Reporting Initiative (GRI) standards in sustainability disclosures is associated with higher firm value, highlighting the importance of standardization and transparency in building investor confidence. Furthermore, several studies advocate the integration of multiple reporting frameworks as a means of enhancing disclosure quality and value creation. Finally, a number of studies emphasize the differentiated effects of environmental, social, and governance (ESG) dimensions, arguing that ESG considerations should be systematically incorporated into corporate financial planning, regulatory design, and investment decision-making to achieve long-term outcomes.
 
 

Keywords

• ESG Disclosure
• Financial Performance
• Market Performance
• Operational Performance
• Sustainability Reporting
• Systematic Review

Main Subjects

• Accounting report