Background of the Study
The continued existence of any organization is relatively determined by the interaction with its environment. Hence, their impact on their immediate environment and society is also based on their activities. In essence, as organizations seek to achieve competitive advantages over their competitors, the businesses grow complex and quite industrious, this, in turn, will affect the environment and society. Industrialization is also associated with economic, social and environmental hazards ranging from environmental degradation to air and water pollution which has dramatically increased deforestation and loss of habitats for aquatic and terrestrial animals (Utile, 2016).
Generally, an organization's main objective is to grow, survive, and maximize value for its owner (shareholders). However, to meet these objectives they must prepare conventional financial reports to investors, potential investors, shareholders, and other stakeholders who show their financial performance but these reports usually do not reflect the effect of the operations of the corporation on the environment. According to Simnet, Vanstraelen & Chua (2009), over the past decade, conventional financial reporting has been criticized for not representing multiple dimensions of a corporation's value. The criticism of financial reporting coupled with the current global financial predicament has asserted more pressure on accounting to represent and present the multiple dimensions of a firm's value (Utile, 2016). Furthermore, the increasing need for non-financial disclosures the growth of global ecological awareness, and the movement for sustainable economic growth are bringing to the attention of firms towards making their operations sustainable and ecologically sensitive.
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This is the reason behind the sustainability agenda (sustainability reporting) which is linked to earlier ideas like the accounting for human resource and social audits in the 70s triple bottom line reporting and environmental reporting in the '90s, corporate social responsibility reporting, and various versions of the GRI (Global Reporting Initiative) guidelines on reporting (Simnet, Vanstraelen & Chua, 2009). Sustainability reporting has become essential to both developed and developing economies with the increasing concern for the global environment and preservation of the global climate to make it more sustainable.
The situation is not different in Nigeria, as one of the oil-producing countries in the world, the Nigerian situation has always been a major cause for great concern for the effect on the environment. Until recently, Nigeria had no mandatory environmental or social reporting requirement for public companies. Nigeria was classified in the corporate sustainability reporting quadrant tagged 'starting behind' (Asaolu et al., 2011).
In response to their sustainable development policies and practices, many companies claim that they recognize their social and environmental responsibilities, in addition to their economic responsibilities, and are seeking to manage and account for these activities in an appropriate manner (Akinlo & Iredale, 2014). Corporate sustainability reporting has become such an important issue that most companies are now embracing this evolving corporate reporting system (Uwuigbe, Olubukunola & Anijesushola, 2011). Statistics from the Global Reporting Initiative (GRI) reflect this trend in Sustainability Reporting. The use of Sustainability Reporting (a term used to describe a company's reporting on its economic, environmental, and social performance) techniques has been increasing rapidly in recent years (Olayinka & Temitope, 2011).
In light of this, the study will critically look at the nexus between sustainability reporting and the competitive advantage of Nigerian-listed deposit money banks.
Statement of the Problem
Amidst the consistent competitiveness of the industry, the accomplishment of the deposit money banks is hinged on the optimal financial performance of the banks. The optimal financial performance of the banks indicates the genuine interpretation of the plans of the banks and their capabilities to invest property, assets, and equipment and accomplish set goals.
The essence of deposit money banks is to accomplish significant returns from their financial operations and investment activities. Therefore, sustainability ought to be a component of all activities and processes related to the environmental, economic, and social activities of the firm. However, the debate on the relationship between banks' engagement in sustainability practices and competitive advantage has dominated past literature. This could be a result of most organizations' activities engendering their immediate environments which are a source of worry to environmental stakeholders.
Nonetheless, despite the empirical evidence spanning several decades across the world and specifically in Nigeria, there seems to be a lack of consensus among the outcomes of these studies. There are various challenges to sustainability practices ranging from difficulties of estimation and projections, materiality, understanding connections among activities and effects, building up robust indicators, verifiability and assurance, and the test of applying the generally rigorous benchmarks of accounting to sustainable and development issues.
In light of this, the present study will determine the impact of sustainability reporting on the competitive advantage of listed deposit money banks in Nigeria by investigating the effects of economic, environmental, and social sustainability dimensions on the financial performance of Deposit Money Banks in Nigeria.
Objectives of the Study
The main objective of this research is to ascertain the impact of Sustainability Reporting on the competitive advantage of Nigerian-listed deposit money banks. However, the specific objectives of this research are to:
Determine the impact of the three dimensions of corporate sustainability on the competitive advantage of Deposit Money Banks in Nigeria;
Examine the impact of corporate sustainability reporting on Return on Equity (ROE) of Deposit Money Banks in Nigeria;
Highlight the extent to which corporate sustainability reporting affects the Return on Assets (ROA) of Deposit Money Banks in Nigeria; and
Examine the effect of corporate sustainability reporting on Earnings Per Share (EPS) of Deposit Money Banks in Nigeria.
Research Questions
The research questions for this study are as follows:
- What is the impact of the three dimensions of corporate sustainability on the competitive advantage of Deposit Money Banks in Nigeria?
- What is the impact of corporate sustainability reporting on the Return on Equity (ROE) of Deposit Money Banks in Nigeria?
- To what extent does corporate sustainability reporting affect the Return on Assets (ROA) of Deposit Money Banks in Nigeria?
- What are the effects of corporate sustainability reporting on Earnings Per Share (EPS) of Deposit Money Banks in Nigeria?
Hypotheses of the Study
The following are the hypotheses of the study:
- Ho1: There is no significant aggregate effect of the three dimensions of sustainability on the competitive advantage of Deposit Money Banks in Nigeria
- Ho2: There is no significant effect of the dimensions of sustainability on the financial performance as measured by ROE in deposit money banks in Nigeria
- Ho3: There is no significant effect of the dimensions of sustainability on the financial performance as measured by ROA in deposit money banks in Nigeria
- Ho4: There is no significant effect of the dimensions of sustainability on the financial performance as measured by EPS in deposit money banks in Nigeria
Operationalization of the Research Variables
The variables for this research will therefore be operationalized here:
Independent Variable: Sustainability Reporting (X)
Dependent Variable: Competitive Advantage of Nigerian Listed Deposit Money Banks (Y)
Y = f (X)
Y = (y1, y2, y3)
X = (x1, x2, x3)
Where,
Y= Competitive Advantage of Nigerian Listed Deposit Money Banks (proxied by financial performance)
y1 = Return on Equity (ROE)
y2 = Earnings Per Share (EPS)
y3 = Return on Assets (ROA)
And
X = Sustainability Reporting
x1 = PRF (measured by Profit Reporting)
x2 = PPL (measured by People Reporting)
x3 = PLT (measured by Reporting on PlanetEnvironmental Impact)
The associated regression models will be developed in chapter three where the methodology of the study will be discussed
Scope of the Study
The study is on the Sustainability Reporting and competitive advantage of listed deposit money banks in Nigeria. The scope of the study will cover all the listed deposit money banks in Nigeria. The period 2009 - 2019 will cover the aspect that deals with data for statistical analysis.
Significance of the Study
The study will be of immense benefit to various stakeholders ranging from banks' management, regulatory authorities, the Financial Reporting Council of Nigeria, Local communities and other stakeholders, Companies yet to adopt Sustainability Reporting, Professional accountancy bodies, and future researchers. First, due to the rapid evolution of Sustainability Reporting, different standards and frameworks have emerged. This research will assist organizations' management in determining which sustainability standards and guidelines to follow.
From a regulatory perspective, there are currently no legislative requirements in Nigeria for companies to prepare and publish sustainability reports. This research will help enhance understanding of the scope of knowledge of regulatory authorities like the Corporate Affairs Commission and the legislative arm of government in putting in place regulations that encourage Sustainability Reporting.
From a standard-setting perspective, there is currently no local standard for companies to prepare and publish sustainability reports. This research will serve as a wake-up call for the Financial Reporting Council of Nigeria to put machinery in place for Sustainability Reporting standards or guidelines.
This research will help to educate local communities where these companies operate and other stakeholders like employees and social and environmental non-governmental organizations regarding the adequacy and potential of corporate Sustainability Reporting to meet their information needs and help them hold companies to account.
Also, this research will help companies that are yet to adopt Sustainability Reporting practices to understand the pros and cons of this evolving reporting system and its impact on corporate performance. They will be better placed to decide on whether to adopt this reporting system or not.
In the area of academics, the study will contribute to the enrichment of the literature on Sustainability Reporting. It will throw more light to students, scholars, and academics on the relationship between Sustainability Reporting and the corporate performance of companies. The research will serve as a body of reserved knowledge to be referred to by researchers.
Definition of Terms
Competitive Advantage: This is a superior position achieved by a company as a result of its successful strategy and challenging to imitate.
Corporate sustainability: A business approach that creates long-term stakeholder value by embracing opportunities and managing risks derived from economic, environmental, and social performance.
Deposit money banks: These are resident depository corporations and quasi-corporations that have any liabilities in the form of deposits payable on demand, transferable by cheque, or otherwise usable for making payments.
Economic benefits: These are benefits that can be quantified in terms of money generated, such as net income or money saved when action is taken to reduce costs.
Environmental benefits: These are gains associated with the actual or potential use of natural assets due to economic activities.
Social benefits: This represents an increase in the welfare of a society that is derived from a particular course of action. While some social benefits can be quantified, some such as greater social justice, cannot easily be quantified.
References
- Akinlo, O.O. & Iredele, O.O. (2014). Corporate environmental disclosures and market value of quoted companies in Nigeria. The Business & Management Review, 5(3).
- Asaolu, T.O., Agboola, A.A., Ayoola, T.J. & Salawu, M.K. (2011). Sustainability reporting in the Nigerian oil and gas sector. Proceedings of the Environmental Management Conference, Federal University of Agriculture, Abeokuta, Nigeria.
- GRI (2011). Sustainability reporting guidelines, version 3.1.
- GRI (2013). The G4 sector-specific disclosures for financial services.
- Olayinka, M.U. & Temitope, O.F. (2011). CSR and financial performance: The Nigerian experience. Journal of Economic and Sustainability Development, 3(4), 44-54.
- Simnet, R., Vanstraelen, A. & Chua, W.F. (2009). Assurance on sustainability reports: An international comparison. Accounting Review, 84(3), 937-967.
- Utile, B.J. (2016). Effect of sustainability reporting on firm's performance: A review of the literature. International Journal of Business & Management, 4(7), 203-208.
- Uwuigbe, O.R. (2013). Corporate governance and share price: Evidence from listed firms in Nigeria. An International Multidisciplinary Journal, 7(2), 129-143.
- Uwuigbe, U., Olubukunola, U. & Anijesushola, O.A. (2011). Corporate social responsibility disclosures by environmentally visible corporations: A study of selected firms in Nigeria. European Journal of Business and Management, 3(9), 9-17.
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