SDGs in corporate responsibility reporting: a longitudinal investigation of institutional determinants and financial performance.

Companies play a central role in the achievement of Sustainable Development Goals (SDGs); as such, they face institutional pressures to increase their engagement with SDGs. However, given the complexity of SDGs, it is unclear whether these pressures lead firms to adopt engagement approaches that address a few goals or the whole set of 17, and if that choice has any subsequent effect on financial performance. To shed light on these issues, this research draws on the neo-institutional theory to investigate whether two institutional determinants—industry type and country of origin—affect SDG engagement and whether such engagement improves financial performance. Based on a content analysis and a regression analysis on high-reputation companies (the 100 most sustainable firms in the world) over the period 2017–2020, we find that the institutional pressures associated with industry type and country-of-origin positively impact any engagement approach to SDGs. However, we establish that companies’ financial performance only generally improves when engaging with either the whole set of SDGs or a specific subset of the most frequently cited. This study provides important theoretical and practical contributions that illuminate firms’ institutional and financial rationales for adopting SDGs.

1 Introduction

Compared to their peers, sustainable companies are more likely to gain greater legitimacy, reduce their environmental and social risks, improve their image and reputation, and gain access to more and better resources (Barnett & Salomon, 2012; Cordeiro et al., 2018, 2021; Hussain et al., 2018). There is great value in adopting a proactive stance toward sustainability. Recently, companies are facing a new, ambitious challenge to foster their sustainable proactivity: specifically, they are asked to drive the success of the sustainable development goals (SDGs) (UN News, 2015). The SDGs represent an important shift in developing and implementing sustainable initiatives. With their 17 goals and 169 targets proposed by the United Nations (UN) General Assembly, the SDGs aim to jointly improve an interconnected set of sustainable development themes. Prior references to sustainable development—such as the Millennium Development Goals (MDGs)—involved governmental, regional, and national stakeholders. SDGs, instead, require that also companies engage as change agents by applying “their creativity and innovation to solving sustainable development challenges” (UN General Assembly, 2015, p. 29). As a result, companies increasingly face institutional pressures to assume a central role in SDGs.

These institutional pressures stem from stakeholders who want to address companies’ adoption of certain decisions and actions. According to the neo-institutional theory (Chizema & Buck, 2006; DiMaggio & Powell, 1983), companies tend to tackle sustainable issues, such as SDGs, to gain legitimacy and obtain the social license to operate (Demuijnck & Fasterling, 2016). In particular, companies tend to respond to similar institutional pressures by mimicking other companies’ decisions and actions (in line with stakeholders’ expectations). In other words, institutional pressures within similar environments, such as country of origin and industry (DiMaggio & Powell, 1983; van Zanten & van Tulder, 2018; Zhu & Sarkis, 2007), tend to encourage similar responses. Although this initiative has attracted sizable attention from different institutional environments (Haffar & Searcy, 2018; PwC, 2019), little is known about the real contribution of institutional pressures on the level of SDG engagement. Previous studies mostly drew on early adopters and cross-sectional analyses to investigate said contribution, ultimately producing insufficient and conflicting results (Elalfy et al., 2021; Silva, 2021; van der Waal & Thijssens, 2020).

The present research addresses this gap, in line with the neo-institutional view, by exploring two types of institutional environments. Specifically, we distinguish between developed countries vs. developing countries, assuming that stakeholders in the former are more concerned about SDGs. Furthermore, we consider the industrial environment by distinguishing between high-polluting industries vs. less-polluting industries, assuming that stakeholders in the former may be more sensitive to SDGs. We choose these two institutional environments to explore whether their different pressures foster different SDG engagement strategies. Indeed, given the internal complexity of the SDGs, companies have great discretion in tailoring their strategic approach in response to their respective institutional pressures. As a result, they may allocate resources to a broad range of goals or a focused combination of them (e.g., environmental-related goals, social-related goals). For example, stakeholders in developing countries are more likely to compel companies to invest in a focused combination of SDGs (e.g., social-related SDGs) rather than the overall set of SDGs. In contrast, stakeholders in high-polluting industries may be more concerned with environmental-related SDGs than the total set. Past studies have overlooked this issue: most of them have investigated a small number of individual goals rather than the complete set (Magliacani, 2022; Mio et al., 2020; Sullivan et al., 2018). Our study overcomes this problem by acknowledging the various strategic approaches to SDG engagement, which may be similar among companies that share an institutional environment and thus are more likely to adopt a similar strategic approach as a response.

It is important to note that companies’ engagement in SDGs may be symbolic or substantive. According to the literature, a symbolic response implies a superficial effort to fulfill institutional requests, whereas a substantive response involves a costly and effortful change in the design and management of strategies and processes (Adams & Frost, 2008; Maas et al., 2016). Past studies have highlighted this issue in the case of SDGs, questioning whether companies’ initiatives contribute to a concrete change in their strategies and operations (Bebbington & Unerman, 2018; Elalfy et al., 2021). To explore whether companies’ engagement in SDGs creates more incentive for symbolic or substantive change, we study the effect of SDGs on financial performance. In doing so, we assume that stakeholders can distinguish between symbolic and substantive responses (Schons & Steinmeier, 2016), and thus will only reward companies that substantively transform their businesses to fully address SDGs.

Overall, our research provides insights into the following questions: (a) how do institutional pressures affect companies’ engagement in the overall set of SDGs vs. specific subsets of SDGs; and (b) to what extent do institutional pressures toward SDGs’ engagement lead, in turn, to credible, substantive initiatives that positively affect financial performance? Our study addresses these questions by adopting both qualitative and quantitative analyses. Compared to previous studies focusing on samples selected from the Fortune Global 250 (e.g., Ehnert et al., 2016; Perego & Kolk, 2012) or national databases (e.g., Uyar 2017), we focus on organizations with a high reputation for sustainability performance. The rationale for this choice is that SDGs are a relatively recent creation; many companies are still debating how to include them in their strategy (PwC, 2019). The risk is to have a scarce understanding of the development of SDGs adoption as organizations do not report them yet. As high-reputation companies are those that constantly meet stakeholders’ expectations (Petkova et al., 2014), they are more likely to promptly modify their sustainability strategy and integrate new regulations (such as SDGs) as they arise. High-reputation companies may also serve as a benchmark for the evolution of SDGs in other organizations.

We, therefore, study the sustainability reports of the “global 100 most sustainable corporations in the world” (Corporate Knights, 2020) over the period 2017–2020. We then perform a qualitative analysis using the NVivo software to investigate the extent to which companies disclose their SDG engagement. On this point, we identify four strategies: (1) level of engagement in SDGs as a whole, (2) level of engagement in environmental-related SDGs, (3) level of engagement in social-related SDGs, and (4) level of engagement in the most frequent combination of SDGs pursued by organizations. Finally, we perform a quantitative analysis using longitudinal regression models to investigate the effect of the selected institutional pressures (i.e., developed vs. developing countries; high-polluting vs. low-polluting industry) on the four strategies, and by extension, their effects on financial performance. Our findings show that companies in developing countries and high-polluting industries are more engaged with SDGs compared to companies in developed countries and low-polluting industries, without any difference among the strategic approaches to SDGs. On the contrary, the strategic approaches to SDGs become important to explain whether SDGs engagement is considered substantive and, therefore, yields positive financial implications. Specifically, we find that only an engagement in the overall set of SDGs or the focused set of SDGs 8 (decent work and economic growth), 13 (climate action), and 12 (responsible consumption and production) has a positive and significant effect on financial performance.