Potential Impact of Sustainability on Corporate Financial Performance Report (Assessment)

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Updated: Mar 25th, 2024

Introduction

The modern world continues to suffer due to various malpractices arising from unethical and inappropriate business and human activities. Since many corporations tend to command huge financial resources and operations, chances of destroying the environment increase significantly due to overutilization, pollution, and absence of recycling strategies. Within the past three decades, governments have implemented superior policies aimed at holding corporations accountable for their actions. In the United Arab Emirates (UAE), the issue of sustainability has become part of business engagements. Most of the implemented policies require companies to engage in green reporting, sustainable business practices and focus on the best approaches to protect the natural environment. Many partners and customers are becoming more sensitive to the problem of climate change than ever before. This paper uses the case of Emirates Global Aluminium to describe the relationship between sustainability efforts and their impact on financial performance.

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Sustainability Definition

The predicaments of global warming and climatic change have forced many people, corpo,rations and governments to take the issue of sustainability more seriously than ever before. El Sawy (2019) defines the idea as any form of approach aimed at promoting the effectiveness and integrity of the environment. At the corporate level, the concept refers to the evidence-based and long-term actions different businesses implement to maximize stakeholder value. This goal becomes possible when the implemented strategy or model is by the ethical environmental, economic, and social attributes of doing business. Anderson (2018) goes further to present these three principles to define the nature of corporate responsibility: environment, economy, and society. Companies that focus on this initiative will strike a balance between the created or earned profits with the wellbeing of the people they serve and the wider planet.

Within the business setting, corporations have the potential to redefine their models depending on the available resources, existing policies or legal guidelines and the exp,ectations of the targeted customers. For example, a specific company can decide to allocate some of its profits to tree planting exercises and cleaning exercises. Another one might decide to embrace the use of modern technologies for production purposes to cut down their carbon footprints or emissions (El Sawy 2019). The decision to address some of the emerging challenges and problems of the communities it serves would also become an effective sustainability practice. Businesses need to expand or improve their models continuously in order to become more attractive to the targeted customers and eventually maximise their sales and profits. Consequently, firms that take this idea into consideration will also remain sustainable and continue to operate for many years.

UAE Company: Emirates Global Aluminium

The Emirates Global Aliminium (EGA) remains one of the biggest companies in the UAE that are not part of the oil and gas industry. Within the past seven years, this organisation has been taking the issue of sustainability seriously than ever before. It is currently pursuing such an objective in accordance with the sustainable development goals (SDGs). The company has been providing accurate and timely sustainability reports, such as green accounting. The presented documents have revealed that it has been considering some of the best action plans to meet the demands of different stakeholders while at the same time improving its business model continuously. For example, the leaders at EGA have indicated that the company has been minimising its emissions and increasing the idea of innovation (EGA 2018 Sustainability Report 2018). Such a practice is essential since it results in additional use of emerging technologies.

The leaders at EGA has gone further to engage in various activities that can empower more community-based activities, including tree planting and recycling programs. The business model has been improved in such a way that effluents, emissions and wastes are reduced or managed significantly (Sengupta 2019). The collaboration with different stakeholders is an evidence-based approach that continues to deliver positive results. According to this company’s annual report, it has widened the sustainability concept to include regulators, customers, stakeholders and regulators. The company has established additional strategies to improve its research and development (R&D) in this area (EGA 2018 Sustainability Report 2018). Through the process of innovation, EGA will continue to identify and implement superior practices that can eventually increase its sustainability index. Such a practice has become a good model that different companies in the wider region have been emulating. Most of the agencies have been focusing mainly on those corporations in the oil sector since they remain dominant in the UAE economy.

Sustainability Impact on EGA’s Financial Performance

The current financial performance of EGA reveals why sustainability efforts are essential in every business organization. Organisational theories encourage firms to implement sustainability initiatives in an attempt to protect the natural environment and eventually maximise their profits. Sengupta (2019) reveals that many customers are today becoming aware of the problem of climate change and how it might affect the experiences of future generations. When firms engage in practices that are aimed at improving the level of sustainability, chances are high that more partners will be willing to do business with them and eventually record increased sales. Using the example of Emirates Global Aluminium, it is noticeable that its financial performance has been improving slowly by slowly. In 2017, EGA recorded a net income of around AED 3.3 billion (EGA 2018 Sustainability Report 2018). This financial figure indicates that EGA is a leading player in the industry. Some analysts have gone further to link this kind of performance to the implemented business model. The decision to engage in sustainability initiatives has also contributed to EGA’s positive financial performance. In 2018, the company’s net income was around AED 1.2 billion (EGA 2018 Sustainability Report 2018). Although this was a huge decline in the recorded sales recorded the previous year, it would be notable that the price for raw materials was on the rise. After realising that the company was losing most of its revenues, the leaders indicated that there was a need to consider the importance of importing raw materials from other countries in an attempt to reduce costs and boost profits (EGA 2018 Sustainability Report 2018). Some of the targeted regions would include Africa and Saudi Arabia. Despite such drawbacks, this recorded revenues meant that the company was on the right path towards becoming more successful in the UAE local industry.

Different industries experience diverse challenges and obstacles that have the potential to disorient performance. According to the report by this company, the UAE aluminum industry was going through a turbulent period due to the difficulties the major players where encountering while trying to focus on their business goals. For EGA, the decision to remain involved in sustainability activities has become a new opportunity to attract more customers and partners (Laskar, Chakraborty and Maji 2017). For the year 2018, EGA managed to increase its production level. It was also pursuing value-addition processes to make their products sustainable and capable of meeting the demands of different stakeholders (EGA 2018 Sustainability Report 2018). The consideration of the unique demands and needs of different partners has resulted in a superior model that revolutionises its business model and continues to implement additional innovative strategies.

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The case of EGA resonates with the information and evidence from different publications and literature materials. For instance, companies engaging in corporate social responsibility become admirable in the region or community (Laskar, Chakraborty and Maji 2017). When they fail to record any legal case associated with environmental degradation, customers start to consider it for business transactions. Such a trend results in increased sales and subsequent profitability levels. Despite the challenges arising from the unavailability of raw materials in the UAE metal industry, EGA has performed exceptionally while at the same time innovating and producing high-quality finished products that meet the demands of the greatest number of customers (Ray and Kanti 2018). The decision to expand the sustainability efforts means that EGA will attract more partners, solve the problems different members of the community experience in their lives and eventually increase its profits (El Sawy 2019). Companies in different sectors should also consider such a practice to become profitable and protect the integrity of the natural environment.

Conclusion

The above discussion has identified EGA as a successful corporation that takes the issues of sustainability and environmental conservation seriously. This example reveals that business firms that engage in such a practice will attract more partners and customers, produce superior products and maximise financial performance. Different stakeholders, government agencies and activists in the UAE have been keen to implement superior measures to ensure that more organisations take this issue into consideration and empower more community members. Such a process is essential since the global society is suffering due to the problems of climate change and global warming.

References

  1. Anderson, Robert. 2018. “The Business of Sustainability.” Gulf Business.
  2. EGA 2018 Sustainability Report. 2018. Abu Dhabi: Emirates Global Aluminium.
  3. El Sawy, Nada. 2019. “.” The National, Web.
  4. Laskar, Najul, Tapan Kumar Chakraborty, and Santi Gopal Maji. 2017. “Corporate Sustainability Performance and Financial Performance: Empirical Evidence from Japan and India.” Management and Labour Studies 42 (2): 88-106.
  5. Ray, Koustubh Kanti, and Koustubh Kanti. 2018. “Firm’s Financial Performance and Sustainability Efforts: Application of Classifier Models.” Global Business Review 19 (3): 722-736.
  6. Sengupta, Debanjali, ed. 2019. “.” Al Circle. Web.
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IvyPanda. 2024. "Potential Impact of Sustainability on Corporate Financial Performance." March 25, 2024. https://ivypanda.com/essays/potential-impact-of-sustainability-on-corporate-financial-performance/.

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