Corporate Sustainability Reporting and Its Association with Financial Performance

Abstract

This study investigates the relationship between corporate sustainability reporting
(CSR) and financial performance by employing a novel, cross-disciplinary methodology that integrates principles from ecological network analysis and information theory. Departing from conventional regression-based approaches that treat sustainability
metrics as independent variables, we conceptualize a firm’s sustainability report as a
complex information system. We introduce the Sustainability Information Coherence
(SIC) index, a measure derived from the mutual information between environmental,
social, and governance (ESG) disclosure categories and the structural entropy of the
report’s narrative and quantitative data linkages. Our core hypothesis posits that the
internal coherence and informational richness of sustainability reporting, rather than
merely the volume or binary presence of disclosure, is a significant predictor of financial outcomes. We analyze a hand-collected dataset of 450 sustainability reports
from global firms across three sectors (Energy, Manufacturing, Finance) from 1998 to
2004. Financial performance is measured via a composite index incorporating Tobin’s
q, return on assets (ROA), and stock price volatility. Results from our constructed
Network Influence Model (NIM) reveal a strong, non-linear association between high
SIC scores and superior financial performance, particularly in environmentally sensitive
industries. The relationship is moderated by the firm’s existing informational transparency, as measured by analyst coverage. We find that for firms with low baseline
transparency, improvements in SIC have a markedly stronger positive financial impact.
This research contributes an original theoretical lens, viewing sustainability reporting
not as a cost or compliance exercise but as a strategic signal of managerial competence
and systemic risk understanding. Our findings suggest that regulators and investors
should prioritize the quality and interconnectedness of sustainability information over
its mere existence.