Disentangling the Bidirectional Relationships Across the Corporate Sustainable Development Indicators

This study disentangles the relationships that exist between the four indicators of corporate sustainable development: economic, environmental, social, and governance. We account for the potential bidirectionality of the relationships, control for the dynamic nature of the sustainability process, and address the endogeneity problem to appropriately analyze the sustainability process. We estimated a panel data from 734 U.S. companies from 2004 through 2016 by using the system generalized method of moments and find evidence of a clear dynamic nature of the businesses' sustainability process. The results show that the current levels of the four sustainable development indicators are strongly determined by the levels of these indicators in the two previous years. Our results also show that corporate sustainable development follows a virtuous circle. The relationships across the economic, environmental, and social indicators are bidirectional and positive. Hence, these three sustainability indicators do not compete for available resources. On the contrary, they are tightly interconnected in a firm's sustainable development processes. Therefore, practitioners and regulators should consider these indicators simultaneously to promote sustainability in businesses and apply long-term sustainability policies. Altogether, our evidence supports the idea that firms can do good by doing well, and they do well by doing good.

Automated summary

This study examines the relationships between the four indicators of corporate sustainable development: economic, environmental, social, and governance. The findings suggest a dynamic nature of the businesses' sustainability process, with strong interconnections between the indicators. The results support the idea that firms can achieve success by prioritizing sustainable development.