Financial Performance: The Impact of Sustainability

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Financial Performance: The Impact of Sustainability

Executive Summary

The concept of sustainability in the present-day world is the defining factor for the financial success of companies in different countries. However, its practical implementation is complicated by the need to include a variety of spheres of influence and address all of the corresponding issues. In this way, sustainable development implies the division into three categories: economic, environmental, and social sustainability. The organizations that manage to comply with the requirements of all these categories are reported to have improved corporate performance. The experience of Islamic and Chinese banks, as well as various Indian companies, emphasizes greater importance of social sustainability as it provides for better results in terms of financial indicators of a firm or, in other words, its profits.

However, the sole orientation on this aspect of business operations is not an option for an organization that strives for economic diversification and an increase in the number of its stakeholders. Therefore, the example of Etihad Aviation Group proves that the issues under the concept of sustainability can be addressed in such a way that it will have a long-term positive effect on all the spheres of the companys influence. Thus, the corporate performance of the worlds biggest companies can be significantly improved with the use of sustainable practices embedded in daily business operations.

Introduction

The concept of sustainability is the primary focus of most companies around the world. However, its implementation is a controversial issue as it requires the assessment of these policies impact on financial indicators. The researchers claim that such influence is evident when analyzing the performance of specific organizations (Alshehhi et al., 2018). Therefore, its consideration will allow readjusting the sustainability policies of a company according to the expected outcome of initiatives. In order to do this, it is vital to distinguish various types of sustainability since their impact differs (Jan et al., 2019). The experience of other enterprises, in turn, will be useful for defining the possible consequences of the focus on sustainable development.

Definition and Forms of Sustainability

Sustainability is a complex notion covering all of the areas of a companys impact. According to the official definition, it is a process of economic growth, environmental protection, and social equality (Jan et al., 2019, p. 703). Hence, it reflects the interrelation between the economy, environmental concerns, and societal issues, such as employment creation. This definition demonstrates all forms of the concept, which are economic, environmental, and social sustainability. It leads to the conclusion that a companys management should cover all these aspects to achieve sustainable development.

Sustainable Development of the Islamic Banks

The coordination of business activities for including sustainability in policies should be performed with the consideration of its forms. According to Islamic banks experience, the impact of their focus on sustainable development varies depending on its type, and the perspective (Jan et al., 2019). Thus, from the perspective of financial management, activities related to economic and social sustainability proved beneficial for these organizations.

As for the shareholders perspective, it is no wonder that social sustainability produced better results than other types due to the connection with people. The market perspective, in turn, is a more controversial measure since its impact differs depending on the type of sustainable development. It is positive for economic sustainability, whereas its influence on environmental and social aspects is reported to be negative (Jan et al., 2019). Hence, it is critical to assess the aspects of a companys initiatives for future prosperity.

The Chinese Banking Sector

The experience of Islamic banking organizations is complemented by the outcomes of similar programs in Chinese banks. The study conducted by Weber (2017) revealed the correlation between the increase in their environmental and social performance and the improvement of their financial indicators. Hence, the result of this research also testifies to the positive impact of sustainability on the overall development of companies incorporating such elements into their operations.

It adds to the banking sectors enhanced financial performance and proves the suitability of such policies for various countries. Moreover, this outcome indicates the possibility of successful investment in corporate sustainability for further developing banks in the world. The implied social impact relates to their capability to make the economy more eco-friendly in the long run with the help of such methods.

Sustainable Development of Indian Companies

The insufficiency of the focus on profitability is also supported by Indian scholars. To reiterate this assertion, Motwani and Pandya (2016) analyzed Indian companies and concluded on the overall importance of sustainability. Moreover, they proved that companies orientation on sustainable development provides for more significant improvement of their indicators rather than policies on profitability. In the case of Indian enterprises, business owners intend to implement social initiatives and thereby benefit society (Motwani & Pandya, 2016). Nevertheless, the focus on one form of sustainability does not indicate less success.

Social Sustainability

As can be seen from the experience of Islamic, Chinese, and Indian organizations, most of them tend to orientate on social sustainability rather than any other form. It can be explained by the prevailing impact it has on financial indicators. The researchers claim that the inclusion of social sustainability practices into a companys daily operations correlates with increased profits (Schönborn et al., 2019). The awareness of such a positive outcome makes business owners readjust their policies to ensure sustainable development through assistance to employees and society.

Overall Impact of Sustainability

It is clear from the outcomes of previous studies that sustainability has a positive impact on companies around the world. Alshehhi et al. (2018) conducted a literature review on the topic to reveal the interrelation of such practices and overall performance. One of the primary outcomes of this paper was the definition of current trends, reflecting the gradual shift from the general notion of sustainability to corporate social responsibility (CSR) (Alshehhi et al., 2018). It adds to the conclusion on the impact of sustainability on society and proves its predominant role in companies activities.

Etihad Aviation Group and Sustainability Practices

Etihad Aviation Group is one of the successful businesses in terms of sustainable development in the UAE. This organization is headquartered in Abu Dhabi and has an innovative approach to operations (Sustainability Review, 2017). The company coordinates activities of its business divisions, which are Etihad Airways, Etihad Airways Engineering, Etihad Airport Services, Hala Group, and Airline Equity Partners (Sustainability Review, 2017). The corporate practices of these divisions are focused on sustainable development in all its forms. The company attempts to comply with all regulations related to its impact (Sustainability, n.d.). Therefore, its consideration will allow assessing the performed tasks and their effectiveness in terms of sustainability.

The peculiarity of the Etihad Aviation Group is the complexity of its initiatives. Thus, the company is oriented on the promotion of social, environmental, and financial sustainability simultaneously and takes responsibility for all its spheres of influence (Sustainability, n.d.). Moreover, its activities comply with the global Sustainable Development Goals to ensure its participation in sustainability programs at the world level (Sustainability, n.d.). In this way, operations of one enterprise can make a difference by increasing awareness and providing an example for other businesses.

The practical implementation of the companys views on world sustainability is reflected in its programs. The financial aspect is addressed by the support of the Abu Dhabi economy, which positively affects business indicators of the Etihad Aviation Group. The companys managers emphasize the importance of economic diversification and invest in tourism and sports (Sustainability, n.d.). The environmental concerns are covered by such initiatives as the reduction of emissions and waste and protecting wildlife (Sustainability, n.d.). The assistance to society is viewed in the organizations contributions to charities and the support of the Emirates Foundation aimed at future generations (Sustainability, n.d.). Thus, the practices of the Etihad Aviation Group fully correspond to the principles of sustainable development.

The Impact of Sustainability Practices on Corporate Performance

The companys focus on economic sustainability is its primary sphere of interest since it aims to improve corporate performance. The goal of the economic diversification described in the programs of sustainable development is expected to have a tremendous impact on the national workforce. In this case, the change starts from the companys proper management allowing to inform employees on the contribution they make to the business (Sustainability Review, 2017). Hence, the perception of economic growth by Etihad Aviation Group is based on the changes in the organization that will lead to an improved economy and, consequently, to the corporate performance of local businesses.

Environmental concerns also occupy an essential place in the companys sustainable development programs. They are related to the necessity of proper use of the planets scarce resources, the availability of which affects both the world and the business equally (Sustainability, n.d.). The attainment of this objective will allow improving corporate performance through the enhancement of the companys image among eco-friendly partners. This outcome will result in an increase in profits due to the trust of other participants and saving scarce resources. Hence, environmental sustainability is no less important for the Etihad Aviation Group than its economic initiatives.

As for the societal aspect of sustainable development, it relates to the improvement of lives in communities and the inclusion of a greater number of stakeholders among the youth. Since the corporate performance of the Etihad Aviation Group is closely interlinked with people, this step will allow to enhance financial indicators gradually. The orientation on future generations, in this case, is vital for engaging communities and staff with the help of charitable activities and training for employees (Sustainability, n.d.). Therefore, the focus on all of the forms of sustainability will allow Etihad Aviation Group to achieve better results in corporate performance.

Conclusion

The present-day business world is a rapidly changing sphere that requires companies to comply with specific regulations related to economic, environmental, and societal areas of their activities. The importance of their sustainable development is defined by the need to address emerging issues, and this consideration applies to Etihad Aviation Group as it is one of the biggest airline companies. Under the specified circumstances, its corporate performance solely depends on the ability of the managers to readjust the operations in accordance with these requirements. Thus, sustainability is vital for the further development of the company.

References

Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability, 10(2), 494. Web.

Jan, A., Marimuthu, M., bin Mohd, M. P., & Isa, M. (2019). The nexus of sustainability practices and financial performance: From the perspective of Islamic banking. Journal of Cleaner Production, 228, 703-717. Web.

Motwani, S. S., & Pandya, H. B. (2016). Evaluating the impact of sustainability reporting on financial performance of selected Indian companies. International Journal of Research in IT and Management, 6(2), 14-23.

Schönborn, G., Berlin, C., Pinzone, M., Hanisch, C., Georgoulias, K., & Lanz, M. (2019). Why social sustainability counts: The impact of corporate social sustainability culture on financial success. Sustainable Production and Consumption, 17, 1-10. Web.

Sustainability. (n.d.). Etihad Aviation Group. Web.

Sustainability Review. (2017). Etihad Aviation Group. Web.

Weber, O. (2017). Corporate sustainability and financial performance of Chinese banks. Sustainability Accounting, Management and Policy Journal, 8(3), 358-385. Web.

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