Sustainability, a means to reach higher profitability?

Sammanfattning: The focus on sustainability has increased in our society during the last years and more firms are conducting CSR reports than ever before. Some claim that firms CSR efforts are only window dressing while other claims that sustainability leads to greater profitability for firms. Previous research is ambiguous when it comes to explain how and if sustainability efforts lead to higher profitability. So, the purpose of this study was to increase the understanding of the relationship between sustainability and profitability and if different regions value sustainability differently. Additionally, this thesis also highlights the impact sustainability controversies have on profitability. We chose to analyze firms from the Nordics and China, as the Nordics are ranked in the top when it comes to sustainability, while Chinese firms are among the worst performers in the world. To test the relationship between sustainability and profitability we used ESGC Scores, which provides a rating of firms CSR efforts, and financial performance in terms of both market based and accounting based measures. Multiple regression models were conducted using panel data of 144 Nordic firms respectively 99 Chinese firms between the years 2009-2018. The results showed no significant relationship between firms ESGC Scores and financial performance for the Nordic firms. However, the results for the Chinese firms showed positive significant relationships between the Social and Environmental Score to financial performance. The results indicated that CSR is more of a hygiene factor in order to become legitime and sustain profitability in developed countries such as the Nordics, while in emerging countries like China, CSR can also be used as a means to create uniqueness and increase profitability. From the results, we suggest that CSR have a maximum level where it can contribute to profitability. The Nordic firms CSR efforts are close to this level while Chinese firms still have the possibility to use CSR to increase profitability over its peers. Our study makes a unique contribution to the research on sustainability and its impact on profitability as no study have compared two regions with substantially different sustainability performance previously.