SUSTAINABLE BUSINESS PRACTICES AND EFFECT ON CORPORATE PROFITABILITY

Abstract

Sustainable business practices are increasingly promoted as drivers of corporate profitability, yet empirical evidence remains fragmented and frequently overstated. This study critically examines the relationship between sustainability and financial performance by analysing firm-level data across multiple industries using environmental, social, and governance (ESG) indicators, carbon emission intensity, and sustainability investment, alongside distinct profitability measures. Rather than assuming a universal positive effect, the analysis differentiates between short-term revenue growth and long-term efficiency-based performance. The findings indicate that sustainability is most strongly associated with operating margin and return on assets, suggesting that its financial relevance lies primarily in improved operational efficiency, asset utilisation, and risk management rather than immediate sales expansion. Carbon emission intensity emerges as a particularly robust predictor of profitability, highlighting environmental efficiency as a measurable economic mechanism rather than a symbolic commitment. However, the results also reveal substantial industry heterogeneity, with asset-intensive sectors facing greater transition constraints and weaker short-term returns. Importantly, the study does not establish causality and acknowledges the role of reverse causation, whereby financially stronger firms may be better positioned to invest in sustainability initiatives. Overall, the findings suggest that sustainable business practices enhance corporate profitability only when strategically integrated into core operations and evaluated through appropriate financial metrics.