SDG Disclosure and Financial Performance: Evidence from Europe

Salah Kayed

and Rasmi Meqbel

Department of Accounting, Business School, The Hashemite University, Zarqa, Jordan

Keywords: Sustainable Development Goals, Financial Performance, Stakeholder Theory.

Abstract: This study investigates the impact of Sustainable Development Goals (SDGs) disclosure on the financial

performance of non-financial companies listed in European countries from 2019 to 2021. As companies

increasingly face pressure to address social and environmental challenges, the extent of their engagement with

SDGs has become a focal point. The research utilizes an SDG disclosure index based on the 17 SDGs as the

primary independent variable. Financial performance is assessed using two key metrics: Return on Assets

(ROA, and Tobin’s Q), analyzed through panel data regression models. The results reveal a significant and

positive relationship between SDG disclosure and financial performance, consistent with Stakeholder Theory.

This suggests that SDG initiatives enhance corporate reputation, reduce regulatory risks, and strengthen

stakeholder relations, thereby contributing to superior financial outcomes. The findings provide valuable

insights into the strategic importance of SDGs for firms and highlight the benefits of aligning business

practices with sustainable development objectives.

1 INTRODUCTION

The growing awareness of environmental and social

issues has led companies worldwide to increase the

volume and depth of their sustainability reporting

(KPMG, 2022), particularly concerning the

attainment of the Sustainable Development Goals

(SDGs) established by the United Nations (UN) in

2015 (Al-Nimer et al., 2022; Alta’any et al., 2024c).

As economic growth accelerates globally, it has

resulted in the significant depletion of natural

resources and an imbalance in environmental

sustainability. The industrial sector, encompassing

activities such as processing, exploration, material

handling (Montiel, 2008), excavation, and

production, remains a central force in economic

development across many nations. However, these

industrial practices often involve substantial energy

consumption, primarily from fossil fuels (coal, oil,

and natural gas), which release pollutants and

contribute to environmental degradation and global

warming (Freeman et al., 2010; Kuilla et al., 2010).

Global warming is a direct consequence of

harmful production practices that transcend national

boundaries, impacting ecosystems worldwide.

Emission-related scandals, which violate the

https://orcid.org/0000-0001-8117-6910

https://orcid.org/0000-0003-1501-3085

principle of sustainable development aimed at

balancing present needs with those of future

generations, have intensified scrutiny of corporate

practices. If companies persist in such unsustainable

behaviors, they risk severe reputational damage, loss

of capital and investment, and a decline in

competitive advantages. In response, the UN has

established the 2030 Agenda for Sustainable

Development, which includes 17 SDGs adopted by

193 countries to address urgent global issues such as

climate change, inequality, poverty eradication,

economic growth, and peace. The SDGs highlight the

need for companies to integrate sustainable practices

into their strategies, focusing not only on economic

performance but also on environmental and social

dimensions. The international community,

governments, civil societies, and organizations have

begun to align their practices with these goals to

mitigate environmental harm and promote

sustainable growth (UN, 2015).

Corporate sustainability has consequently gained

prominence as organizations recognize the need to

balance profitability with responsibility (Alshehhi et

al., 2018; Bodhanwala & Bodhanwala, 2018;

Landrigan et al., 2018). Companies are increasingly

shifting their focus from merely financial

Kayed, S. and Meqbel, R.

SDG Disclosure and Financial Performance: Evidence from Europe.

DOI: 10.5220/0013201400003956

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 7th International Conference on Finance, Economics, Management and IT Business (FEMIB 2025), pages 17-28

ISBN: 978-989-758-748-1; ISSN: 2184-5891

performance to incorporating environmental and

social considerations in their business models

(Alshehhi et al., 2018; Dixon‐Fowler et al., 2013).

Monkelbaan (2019) emphasizes that achieving a

sustainable economy requires equitable production

and consumption patterns across all sectors.

Despite the rising emphasis on SDGs,

implementing sustainable practices remains a

challenge for businesses, primarily due to the

associated costs, which may affect their financial

performance. As a result, the financial implications of

sustainable business practices have attracted

substantial scholarly attention. While previous

studies have explored the determinants of SDG

adoption, such as board diversity and corporate

governance (Al-Shaer et al., 2022), there is limited

research on the financial consequences of SDG

disclosures across all 17 goals, both individually and

collectively (Muhmad & Muhamad, 2021). For

instance, Ramos et al. (2022) found no significant

link between SDGs and corporate performance, but

their study was restricted to a small sample size over

a single year, limiting its generalizability.

This gap in the literature motivates the researcher

to investigate the impact of SDGs disclosure on the

financial performance of non-financial companies

listed in European countries from 2019 to 2021. The

results show that there is a significant and positive

relationship between SDG disclosure and financial

performance, consistent with Stakeholder Theory.

This finding suggests that SDG initiatives enhance

corporate reputation, reduce regulatory risks, and

strengthen stakeholder relationships, thereby

contributing to improved financial outcomes.

2 LITERATURE REVIEW AND

HYPOTHESIS DEVELOPMENT

The adoption of Sustainable Development Goals

(SDGs) has become increasingly relevant for

companies worldwide, as they seek to balance

economic performance with social and environmental

responsibilities. Corporate social responsibility

(CSR) extends the idea of sustainable development by

encompassing a range of corporate obligations that

aim to improve the social and environmental impact

of business activities (Al Lawati & Hussainey, 2022;

Wang et al., 2020). The global emphasis on SDGs,

reflected in the United Nations' 2030 Agenda, has

highlighted the need for companies to align their

business practices with sustainable development

objectives.

Despite the importance of SDGs, integrating them

into corporate strategies remains complex due to the

potential costs and financial implications. Prior

studies have largely focused on the determinants of

SDG adoption, such as corporate governance

characteristics and board diversity (Al-Shaer et al.,

2022). However, limited research has explored the

financial consequences of SDG disclosures across all

17 goals, either individually or collectively (Muhmad

& Muhamad, 2021). Existing literature has also

shown mixed results, making it challenging to

generalize findings across various organizational

contexts (Grewatsch & Kleindienst, 2017). This

highlights the need for further research to clarify

these relationships and provide practical insights for

companies and policymakers.

Stakeholder Theory posits that meeting

stakeholders' social and environmental expectations

can enhance a company’s reputation, strengthen

relationships with customers and suppliers, and

increase operational efficiency (Freeman et al., 2010;

Endrikat et al., 2014). Empirical evidence supports

these theories, with studies showing that firms with

high ESG performance scores and those integrating

SDGs in their strategies experience positive financial

outcomes (Izzo et al., 2020; Muhmad & Muhamad,

2021). Emma and Jennifer (2021) also found that

SDG disclosures positively impact corporate

performance, particularly in controversial sectors and

environmentally sensitive industries.

Based on the previous studies that are aligned with

Stakeholder theory, this study proposes the following

hypothesis:

Hypothesis 1 (H1): There is a positive relationship

between SDG disclosure and corporate financial

performance.

Conversely, other studies suggest that SDG

implementation may negatively affect financial

performance. The Trade-Off Theory posits that firms

prioritizing extensive social and environmental

responsibility may incur high costs that do not

necessarily lead to financial benefits. This focus on

satisfying a broad range of stakeholders could divert

resources away from shareholder interests, leading to

increased social costs and reduced financial

performance (Endrikat et al., 2014). For instance, Li

and Wu (2017) found that implementing an

Environmental Management System (EMS), a

sustainable supply chain practice, negatively

impacted financial performance due to substantial

investments, which reduced operational efficiency.

Similarly, Ionascu et al. (2018) and Provasi and

Harasheh (2021) observed that increasing board

diversity, such as appointing more women (an

FEMIB 2025 - 7th International Conference on Finance, Economics, Management and IT Business

indicator of SDG 5), did not yield significant financial

benefits and, in some cases, had negative

implications.

Consistent with the Trade-off theoretical

perspective, this study proposes the following

hypothesis:

Hypothesis 2 (H2): There is a negative

relationship between SDG disclosure and corporate

financial performance.

The above hypotheses aim to test whether firms

that disclose their progress toward SDGs are

financially rewarded or penalized, demonstrating the

potential benefits of integrating sustainability into

corporate strategies. By focusing on European firms,

this study provides insights into how sustainability

initiatives influence corporate competitiveness and

market valuation.

3 RESEARCH METHODOLOGY

3.1 Study Sample

This study analyzes the sustainable development goal

(SDG) practices of 5,345 non-financial companies

listed in Europe during the period 2019–2021. Europe

was selected as the focus region due to its advanced

corporate social responsibility (CSR) frameworks

and the leadership of its companies in sustainability

practices. Following Kayed (2024), Kayed and

Meqbel (2024), Meqbel et al. (2024), Alta'any et al.

(2024a), and Kayed et al. (2022), the financial sector

has been excluded from the sample. Consequently,

the sample includes firms from the following sectors:

(e.g., Real Estate, Utilities, Industrials, Technology,

Telecommunications, Consumer Discretionary,

Consumer Staples, Health Care, Basic Materials, and

Energy) (

Al Natour et al., 2024; Alshorman et al. 2024; Al

Natour et al., 2022), ensuring a comprehensive

representation of industries. The study focuses on

companies from Germany, Switzerland, Belgium,

Netherlands, France, Spain, Norway, Poland,

Sweden, Greece, Italy, Austria, Luxembourg,

Denmark, Portugal, Finland, Czech Republic,

Hungary, Cyprus, and Ireland, capturing a broad

range of economic, regulatory, and cultural contexts

within Europe. Furthermore, the choice of Europe is

supported by the region's abundant data availability

on SDGs, which facilitates a detailed examination of

disclosure practices. According to Dwekat et al.

(2022), European companies are at the forefront of

CSR and sustainability initiatives, making them an

ideal sample for this study.

3.2 Variables Measurement

The study variables were obtained from multiple

sources. Specifically, data on sustainability related

metrics and board characteristics were collected from

the Asset4 database, while financial data such as firm

size, profitability, leverage, and market-to-book ratio

were retrieved from the World scope database.

3.2.1 Dependent Variable (Firm Financial

Performance)

This research paper employs both accounting-based

and market-based measures to assess financial

performance, using Return on Assets (ROA) and

Tobin’s Q as proxies, following prior research.

Numerous studies have explored the relationship

between sustainability and financial performance

using various performance measures (

Khatatbeh et al.,

2024). However, most of these studies predominantly

rely on accounting-based measures to gauge

profitability, despite limitations such as omitted

variables and a lack of methodological transparency

(Peloza, 2009). To address these limitations, this

research integrates both accounting-based and

market-based measures.

Market-based measures are increasingly favored

due to their reliability and comparability, facilitated

by the availability of information. This study follows

the recommendations of Chen et al. (2001) by using a

combination of these two financial performance

measures.

Return on Assets (ROA) serves as the accounting-

based performance and aligns with the Resource-

Based View (RBV) theory, representing the firm’s

profitability relative to its resources. ROA reflects the

proportion of profit a company generates from its

assets (Oyewo et al., 2024b), offering insight into its

operational efficiency.

Tobin’s Q, the most widely used market-based

performance indicator, is employed to reflect a firm’s

market valuation (Liu et al., 2015; Lopatta et al.,

2017; McWilliams & Siegel, 2000; Peng & Yang,

2014; Oyewo et al., 2024a). It aligns with Signaling

Theory (Spence, 1974) and Stakeholder Theory

(Freeman, 1984).Tobin’s Q is calculated as the ratio

of a firm's market value to the replacement cost of its

assets. A Tobin’s Q value below 1 suggests that the

market undervalues the company’s stock relative to

its assets, while a value above 1 indicates that the

stock is overvalued.

By utilizing ROA and Tobin’s Q as proxies for

accounting and market-based performance measures,

respectively, this research aligns with previous

SDG Disclosure and Financial Performance: Evidence from Europe

studies (Eugster & Isakov, 2019; Long & Driscoll,

2008; Velte, 2017). This dual approach enhances the

robustness of the analysis by providing a

comprehensive evaluation of firm performance from

both operational and market perspectives.

3.2.2 Independent Variables (Sustainable

Development Goals)

Sustainable development is an important concept that

refers to meeting the needs of the present without

compromising the ability of future generations to

meet their own needs. In recent years, interest has

grown in measuring how well companies are

contributing to sustainable development, and one way

this can be done is by examining sustainability

initiatives.

To measure companies' sustainability initiatives,

this study utilizes 17 distinct areas, or "goals,"

related to sustainable development, as defined by the

United Nations (UN). For each goal, it is assessed

whether a company disclosed initiatives related to

that goal in a particular year. A dummy variable is

used for this purpose: if the company disclosed

initiatives related to a specific goal, that goal is

assigned a score of 1 for that year. Conversely, if no

initiatives related to a particular goal were disclosed,

the goal is assigned a score of 0 for that year. Then,

the total number of goals for which a company

discloses initiatives in a specific year is summed and

then expressed as a percentage of the 17 total goals

(see Table 1). By examining the scores for all 17

goals over multiple years, an understanding can be

gained of how much a particular company is

contributing to sustainable development. This

method allows for comparison between firms and

tracking of changes over time, identifying areas

where companies are doing well and areas where

they could improve.

Table 1: Sustainable development goals.

Goal 1: No poverty

Poverty is considered one of the fundamental issue

addressed by the goals of sustainable developmen

ecause it is widespread and closely affects current an

future generations. This impedes the main goal o

sustainable development, which is achieving prosperit

for present and future generations. There are program

aimed at reducing poverty through capacity building

empowerment, and social security.

Goal 2: Zero hunger

The goal of ending hunger, achieving food securit

and improved nutrition, and promoting sustainabl

agriculture has been in place since the Second World War.

Addressing hunger and focusing on food security ar

important because nearly two billion people suffer fro

malnutrition, which deprives them of a healthy life.

Encouragement has been given to farm on a large scale

and according to previous studies, there is a challenge t

eliminate hunger by 2025 by enriching crops wit

different nutrients. The promotion of agricultural food tha

is rich in nutrients will help to address and eliminat

hunger around the world and promote the goals o

sustainable development (Blesh et al., 2019).

Goal 3: Good health and wellbeing

The third goal of the Sustainable Development Goal

receives special attention, especially in light of curren

threats to global health, such as the recent Covid-1

andemic. The pandemic has had a significant impact o

national and international progress, and has highlighte

the international crises of refugees and migrants. Thes

crises have led to malnutrition, increased poverty, and a

increased burden on a few people, particularly on women

children, and the elderly. Addressing immunity for thes

vulnerable groups is crucial for achieving the goals o

sustainable development (Nunes et al., 2016).

Goal 4: Quality education

The quality of education is a crucial aspect o

achieving the goals of sustainable development. In 2004

the concept of the movement of open educationa

resources (OER) emerged, which helps to ensure fai

access to knowledge and education, especially i

developing countries where living conditions are difficult.

The OER movement is less than a year old but has alread

garnered great interest in the quality of education. It ca

help with the eradication of illiteracy, vocationa

education, and attention to refugees and their education.

Science can be accessed by all sectors of education, whic

will greatly benefit developing countries (Seraphin et al.

2021).

FEMIB 2025 - 7th International Conference on Finance, Economics, Management and IT Business

Table 1: Sustainable development goals (cont.).

Goal 5: Gender equality

The fifth goal of the Sustainable Development Goal

is to achieve gender equality by enhancing the position o

women and their ability to participate in environmenta

work, providing them with livelihoods, and dismantlin

the restrictions that may hinder their means of life. Foo

from forests and fisheries is a major product, an

achieving the first target of the Sustainable Developmen

Goals can strengthen this goal (Agarwal, 2018).

Goal 6: Clean water and sanitation

This goal is considered one of the factors that ca

improve development and is closely linked to wate

supply and sanitation services. It is important to manag

these services in a sustainable manner to serve the world'

population, as water is one of the most crucial service

rovided by local governments. Achieving this goal is

significant step towards prosperity and in achieving th

goals of sustainable development. It requires the efforts o

governments to provide sources of clean, healthy drinkin

water (Martínez-Córdoba et al., 2020).

Goal 7: Affordable and clean energy

Energy sustainability is a crucial goal, which aims t

rovide clean energy at affordable prices. If this goal i

ignored, it may cause serious problems in the futur

ecause energy supports all human activities an

contributes to economic growth. It also meets huma

needs such as lighting, electricity, and mobility, amon

others. Therefore, efforts must be intensified to provid

sustainable energy at reasonable prices (Chovancová

Vavrek, 2022).

Goal 8: Decent work and economic growth

This goal is directly linked to the goals of sustainabl

development, but it has been widely criticized becaus

long-term economic growth is often seen as incompatibl

with sustainability and environmental concerns. However

this goal aims to provide safe and healthy workin

environments for all, and to create decent and sustainabl

work opportunities that are also environmentally soun

(Kreinin & Aigner, 2022).

Goal 9: Industry, innovation, and infrastructure

This goal aims to foster innovation, promote inclusiv

and sustainable industrialization, and leverag

infrastructure development to achieve long-ter

sustainability and benefits. It also focuses o

technological advancements as a key driver fo

sustainability and to keep up with the industrial revolutio

and artificial intelligence. The emergence of thes

industries is a positive sign of sustainability for futur

generations (Binti Sulaiman et al., 2021; Abu Alia et al.

2024).

Goal 10: Reduced inequalities

The goal is to reduce the disparity between people s

that they can compete on equal footing for the future

without the decision being solely in favor of the wealthy.

Previous studies have shown that individuals with low an

stagnant incomes, due to reasons such as immigration, fel

a significant gap in their living environment. The greate

the inequality between individuals, the more they tend t

consume for themselves (Chancel et al., 2018).

Goal 11: Sustainable cities and communities

This goal highlights the interconnectedness of th

sustainable development goals, as the previous ten goal

culminate in the creation of smart cities that can serv

future generations. These cities feature advanced livin

systems such as infrastructure, renewable energy systems

storage, and agricultural operations, which can strengthe

the economies of sustainable countries (Blasi et al., 2022).

Goal 12: Responsible consumption and productio

The interdependence of consumption and productio

achieves the goals of sustainable development, a

responsible behavior and environmental production hav

an impact on sustainable development. This affect

consumers, making them more interested in th

environment (Gunawan et al., 2020).

Goal 13: Climate action

It is considered one of the most difficult sustainabl

goals to achieve due to its cascade of effects o

agricultural production, and this affects the rest of th

revious goals, as well as displacement in poo

communities. Climate change will lead to the

ossibilit

of achieving sustainable development goals related t

well-being (Fuso Nerini et al., 2019).

SDG Disclosure and Financial Performance: Evidence from Europe

Table 1: Sustainable development goals (cont.).

Goal 13: Climate action

It is considered one of the most difficult sustainabl

goals to achieve due to its cascade of effects o

agricultural production, and this affects the rest of th

revious goals, as well as displacement in poo

communities. Climate change will lead to the

ossibilit

of achieving sustainable development goals related t

well-being (Fuso Nerini et al., 2019).

Goal 14: Life below water

Conserve and sustainably use the oceans, seas, and

marine resources for sustainable developmen, It aims to

pay attention to the infrastructure in the seas and to take

care of fish because it is considered a food source and it

can be a long-term financial source, and by providing

healthy water and a clean environment, it results in a fish

environment, fisheries and a food source for all groups

(Arora & Mishra, 2019).

Goal 15: Life on land

Protect, restore, and promote sustainable use of

terrestrial ecosystems; sustainably manage forests;

combat desertification; and halt and reverse land

degradation; and halt biodiversity loss.

Goal 16: Peace, justice, and strong institutions

Promote peaceful and inclusive societies for

sustainable development; provide access to justice for

all; Building effective, accountable and comprehensive

institutions at all levels, researching all problems that

may lead to a lack of peace in countries, such as violence

and displacement, and working to establish peace to

reduce the processes that limit the spread of peace

(McDermott et al., 2019).

Goal 17: Partnerships for the goals

Strengthening the means of implementation and

revitalizing the global partnership for sustainable

development and working to intensify efforts to achieve

the goals of sustainable development in the fullest and

coherent way to reach the year 2030, achieving these

goals to create a sustainable planet that depends on

multiple partnerships and various elements to combine

resources, tasks and knowledge (Gray & Stites, 2013).

3.2.3 Control Variables

In line with previous studies (Albitar et al., 2020;

Lassala et al., 2021; Kayed et al., 2024b; Mardawi et

al., 2024), this study controls for several variables that

may influence a firm's financial performance.

Specifically, we controlled for firm size, leverage,

board size, board independence, and board gender

diversity.

3.3 Empirical Model

Based on (Emma & Jennifer, 2021; Galeazzo et al.,

2023; Ramos et al., 2022), this study used the

following regression models to test the hypotheses:

𝑅𝑂𝐴

𝑖𝑡

= 𝛽

+ 𝛽

𝑆𝐷𝐺_𝑠𝑐𝑜𝑟𝑒

𝑖𝑡

𝛽

𝐿𝐸𝑉𝐸𝑅𝐴𝐺𝐸

𝑖𝑡

+ 𝛽

𝑆𝐼𝑍𝐸

𝑖𝑡

𝛽

𝐵𝑂𝐴𝑅𝐷_𝑆𝐼𝑍𝐸

𝑖𝑡

+𝛽

𝐵𝑂𝐴𝑅𝐷_𝐺𝐸𝑁𝐷𝐸𝑅

𝑖𝑡

+𝛽

𝐵𝑂𝐴𝑅𝐷_𝐼𝑁𝐷𝐸𝑃𝐸𝑁𝐷𝐸𝑁𝐶𝐸

𝑖𝑡

+ 𝐹𝑖𝑥𝑒𝑑

𝑒𝑓𝑓𝑒𝑐𝑡𝑠+ε

(1)

𝑇𝑂𝐵𝐼𝑁

′

𝑠𝑄

𝑖𝑡

= 𝛽

+ 𝛽

𝑆𝐷𝐺_𝑠𝑐𝑜𝑟𝑒

𝑖𝑡

𝛽

𝐿𝐸𝑉𝐸𝑅𝐴𝐺𝐸

𝑖𝑡

+ 𝛽

𝑆𝐼𝑍𝐸

𝑖𝑡

𝛽

𝐵𝑂𝐴𝑅𝐷_𝑆𝐼𝑍𝐸

𝑖𝑡

+𝛽

𝐵𝑂𝐴𝑅𝐷_𝐺𝐸𝑁𝐷𝐸𝑅

𝑖𝑡

+𝛽

𝐵𝑂𝐴𝑅𝐷_𝐼𝑁𝐷𝐸𝑃𝐸𝑁𝐷𝐸𝑁𝐶𝐸

𝑖𝑡

+ 𝐹𝑖𝑥𝑒𝑑

𝑒𝑓𝑓𝑒𝑐𝑡𝑠+ε

(1)

Where all dependent and independent variables are

defined in Table (2), ε is the error term, βk are the

regression coefficients, and Fixed effects are referred

to as an industry, year, and country dummies.

4 DATA ANALYSIS AND

RESULTS

4.1 Descriptive Statistics

Table (3) presents the descriptive statistics of the

variables included in the study. The mean values of

the variables reveal that, on average, the companies

in the sample had a Return on Assets (ROA) of

3.162%, and Tobin's Q of 1.949. The percentage of

Sustainable Development Goals reporting

(SDGs_𝑠𝑐𝑜𝑟𝑒) averaged 0.290. The size of the

companies, measured by natural logarithm of total

assets (SIZE), had a mean value of 13.884, and the

average leverage ratio (LEVERAGE) was 0.216.

Additionally, the mean board size in terms of the

number of directors (LN_BOARD_SIZE) was 8.621,

and the percentage of female directors

(BOARD_GENDER) was 28.218, while the

FEMIB 2025 - 7th International Conference on Finance, Economics, Management and IT Business

percentage of independent directors

(BOARD_INDEPENDENCE) was 52.903. Overall,

the standard deviations of the variables suggest a

relatively high degree of variation in the sample,

indicating potential heterogeneity in the companies'

financial and governance characteristics.

4.2 Correlation Analysis

Multicollinearity refers to a situation in which two or

more independent variables in a regression model are

highly correlated with each other. This can cause

several issues, such as unstable parameter estimates,

inflated standard errors, and reduced statistical power

of hypothesis tests. Therefore, it is important to check

for multicollinearity before conducting regression

analysis.

In the correlation matrix provided in Table (4), the

highest correlation coefficient is 0.6081 between

BOARD_SIZE and SIZE, indicating a moderate

positive correlation between these two variables. The

second highest correlation coefficient is 0.4370

between SDGs_𝑠𝑐𝑜𝑟𝑒

and SIZE, which is also a

moderate positive correlation. While these

correlations are statistically significant at the 1%

level, they are not extremely high, suggesting that

multicollinearity is not a severe problem in this data

set.

To further investigate the possibility of

multicollinearity, and following accounting literature

(e.g. Achiro et al., 2024; Alta’any et al., 2024b;

Kayed et al., 2024a) one can also calculate the

variance inflation factor (VIF) for each independent

variable. The VIF measures how much the variance

of the estimated regression coefficient is inflated due

to the correlation with other independent variables. In

general, a VIF value of 1 indicates no

multicollinearity, while a VIF value of 5 or higher

suggests a potential problem. If the VIF values for all

independent variables are relatively low (see Table

5), then the regression analysis can proceed without

concern for multicollinearity. Alternatively, if one or

more variables have high VIF values, some remedial

action may be required, such as dropping one of the

highly correlated variables or using a different

regression method that is less sensitive to

multicollinearity (Belsley, 1991).

4.3 Regression Results

Table (6) presents the regression results for the

impact of sustainable development goals (SDGs) on

firms' financial performance, while controlling for

other independent variables such as leverage, size,

board size, board gender, and board independence.

The dependent variables used to proxy firms'

financial performance are ROA (Return on Assets),

and Tobin's Q. The results show that SDGs have a

positive and statistically significant impact on firms'

financial performance, as indicated by the

coefficients of SDGs_𝑠𝑐𝑜𝑟𝑒 in both two models.

Specifically, a one percent increase in SDGs_𝑠𝑐𝑜𝑟𝑒

is associated with a 1.630, and 0.516 increase in

ROA, Tobin's Q, respectively. Table (6) also shows

the R-squared values for each regression model. For

the model with ROA as the dependent variable

(Model 1), the R-squared value is 0.175, suggesting

that 17.5% of the variation in ROA is explained by

the predictors in the model. Similarly, for the model

with Tobin’s Q as the dependent variable (Model 2),

the R-squared value is 0.157, indicating that 15.7% of

the variation in Tobin’s Q is accounted for by the

independent variables. These values highlight the

explanatory power of the models in capturing the

impact of SDG disclosures and other control variables

on financial performance. Accordingly, H1 is

accepted, whereas H2 is rejected. There are several

reasons why SDGs may positively influence firms'

financial performance, as suggested by previous

research. One possible explanation is that firms that

adopt sustainable practices tend to be more efficient

and innovative, leading to cost savings and higher

revenues. For example, adopting sustainable

practices may help firms reduce waste, energy

consumption, and raw material usage, resulting in

cost savings and improved operational efficiency (Al

Lawati & Hussainey, 2022; Martí-Ballester, 2020).

Similarly, firms that invest in sustainable

technologies or products may benefit from increased

consumer demand and higher prices, leading to

higher revenues (Al Lawati & Hussainey, 2022).

Moreover, firms that incorporate SDGs in their

business strategies may also enhance their reputation

and brand image, leading to improved customer

loyalty and attracting new customers. Additionally,

investors are increasingly interested in firms'

sustainability performance, and firms that

demonstrate a commitment to SDGs may enjoy lower

financing costs and access to capital. Another

possible explanation for the positive association

between SDGs and firm financial performance is that

firms that integrate sustainability into their business

practices may be better able to manage risks and

uncertainties. For example, firms that prioritize

sustainable practices may be better equipped to adapt

to changes in regulations or consumer preferences,

leading to more stable financial performance over the

long term (Al Lawati & Hussainey, 2022;

SDG Disclosure and Financial Performance: Evidence from Europe

MartíBallester, 2020). Furthermore, some studies

suggest that firms that prioritize SDGs tend to have

better relationships with stakeholders, such as

employees, suppliers, and local communities, leading

to improved social capital and reduced conflicts

(Phan et al., 2020). Such improved relationships can

lead to lower employee turnover, improved supply

chain management, and reduced reputational risks, all

of which can positively impact firms' financial

performance (Lassala et al., 2021; Muhmad &

Muhamad, 2021). In addition to SDGs, the regression

results suggest that other independent variables have

significant impacts on firms' financial performance.

For example, leverage has a negative impact on ROA,

while size has a positive impact on both the dependent

variables. Board size has a negative impact on ROA,

while board gender has a positive impact on both the

dependent variables. Board independence has a

negative impact on Tobin's Q. The regression models

also include fixed effects for year, country, and

industry, and the sample includes 5,345 companies

listed in Europe during the period 2019-2021.

5 CONCLUSION

This research examines how disclosing sustainable

development goals (SDGs) impacts the financial

performance of European companies during the

period of 2019-2021. The study uses an index based

on the 17 SDGs to measure the number of SDGs

reported by each company annually as the main

independent variable. The findings report that there is

a significant and positive relationship between SDGs

and financial performance, which is consistent with

Stakeholder theory. This result highlights that SDGs

can improve a company's reputation, reduce

regulatory risks, and enhance stakeholder

relationships, resulting in better financial outcomes.

This study highlights the practical implications

for regulatory bodies, policymakers, managers, and

board members. It is recommended that companies

integrate SDGs into their business strategies and

prioritize the interests of all stakeholders. Such an

approach can enhance a firm's reputation in the

market and lead to better relationships with other

organizations within the industry. Moreover, SDG

implementation is considered compliance with

government regulations, which can further contribute

to the company's financial performance.

Although this study found a positive association

between SDGs reporting and firm financial

performance, several limitations should be

considered in future studies. First, the limited data

availability covering only three years (2019-2021)

may have constrained the ability to observe the full

impact of SDGs reporting. Therefore, future studies

should consider using a more extended period to gain

further insights into the consequences of SDGs.

Second, the proxy for SDGs used in this study was

based solely on the existence of any initiatives related

to the 17 goals, without considering the quality of

such initiatives. Future research could use content

analysis, using qualitative and quantitative factors, to

provide a more accurate proxy of SDGs reporting.

Finally, future studies could consider other market

factors such as information asymmetry or cost of

equity, as few studies have examined the

determinants of SDGs reporting, including corporate

governance mechanisms such as board characteristics

and ownership structure.

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Table 2: Variables definitions.

Variables Label Operational Definition

Dependent Variables

Return on Assets ROA

The ratio of the income before extraordinary items to total assets

(Lopatta et al., 2017).

Tobin Q Tobin’s_Q

The ratio of the market capitalisation of equity plus total debt

divided b

total assets

(

ck et al., 2019

)

Independent Variables

Sustainable

development

goals score

SDG_𝑠𝑐𝑜𝑟𝑒

A proxy of 17 items, each item takes a value of 1 if the firm in a

specific year disclosed their initiatives in any specific goal. Then,

the total number of goals for which a company discloses initiatives

in a specific year is summed and then expressed as a percentage of

the 17 total goals.

Control Variables

Firm size SIZE Natural log of total assets. (source: WorldScope)

Financial

Leverage

LEV The ratio of total debt to total assets. (source: WorldScope)

Board size LN_BOARD_SIZE Natural logarithm of boar size.

Board gender

diversit

BOARD_GE NDER Percentage of female in the board

Board

inde

endence

BOARD_INDEPENDENCE Percentage of independent board members.

Table 3: Descriptive Statistics.

Variable Mean Std. Dev. Min Max

ROA 3.162 12.650 -60.210 33.070

TOBIN'S Q 1.949 3.280 0.044 106.597

SDGs_𝑠𝑐𝑜𝑟𝑒 0.290 0.308 0.000 1.000

SIZE 13.884 2.003 4.779 20.060

LEVERAGE 0.216 0.175 0.000 3.167

LN_BOARD_SIZE 8.621 3.491 1.000 33.000

BOARD_GENDER 28.218 15.024 0.000 100.000

BOARD_INDEPENDENCE 52.903 27.659 0.000 100.000

Table 4: Correlation matrix.

Variable (1) (2) (3) (4) (5) (6)

(1) SDGs_𝑠𝑐𝑜𝑟𝑒 1

(2) LEVERAGE 0.116* 1

(3) SIZE 0.437* 0.234* 1

(4) BOARD_SIZE 0.363* 0.090* 0.608* 1

(5) BOARD_GENDER 0.180* 0.090* 0.248* 0.261* 1

(6) BOARD_INDIPENDENCE 0.081* 0.0345 0.133* 0.0278 0.259* 1

Note: This table presents the Pearson's correlation coefficients. All variables are as defined in Table (2).

*Statistical significance at p < 1% using two-sided t-statistics.

SDG Disclosure and Financial Performance: Evidence from Europe

Table 5: Variance Inflation Factor.

Variable

VIF

SIZE

1.83

BOARD_SIZE

1.67

SDGs_𝑠𝑐𝑜𝑟𝑒

1.27

BOARD_GENDER

1.17

BOARD_INDIPENDENCE

1.09

LEVERAGE

1.05

Mean VIF 1.35

Table 6: The impact of sustainable development goals on firms’ financial performance.

(1) (2)

VARIABLES ROA TOBIN’S Q

SDGs_𝑠𝑐𝑜𝑟𝑒 1.630*** 0.516***

(0.485) (0.139)

LEVERAGE -11.29*** 2.5

(1.371) (2.253)

SIZE 1.620*** -0.627***

-0.169 -0.132

BOARD_SIZE -3.111*** 0.327**

(0.569) (0.148)

BOARD_GENDER 0.0555*** 0.0243**

(0.0135) (0.00955)

BOARD_INDPENDENCE -0.0169** 0.00362*

(0.007) (0.00219)

Constant -48.21*** 10.99***

(10.74) (2.117)

Year fe Yes Yes

Country fe Yes Yes

Industry fe Yes Yes

Observations 5,345 5,345

R-squared 0.175 0.157

Note: the table presents the results of the impact of sustainable development goals on firm’s financial performance for a

sample of companies listed in Europe during the period 2019-2021. All dependent variables are used as a proxy of firms’

financial performance. Standard error is robust. ***Statistical significance at 1% level; **statistical significance at 5% level;

*statistical significance at 10% level.

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