Impact of Sustainable Finance on Business Financial Performance: Insight from London Stock Exchange Firms

Hani A. Omran Elarabi () and Wagdi Khalifa
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Hani A. Omran Elarabi: Department of Business Administration (Accounting and Finance), Akdeniz Karpaz University, Turkish Republic of Northern Cyprus, Nicosia 99010, Turkey
Wagdi Khalifa: Department of Business Administration (Accounting and Finance), Akdeniz Karpaz University, Turkish Republic of Northern Cyprus, Nicosia 99010, Turkey

Sustainability, 2025, vol. 17, issue 11, 1-28

Abstract: The United Kingdom has enacted rules to support green investment, enhancing the financial sustainability of enterprises adopting sustainable practices. These enactments offer financial incentives to enterprises that invest in sustainable initiatives. Companies that do not adopt sustainable practices face increasing operating expenses, a declining market share, and diminished investor trust. This study leveraged the stakeholder theory to examine the impact of sustainable finance on business financial performance. The study focused on 143 non-financial companies listed on the London Stock Exchange, using 17 years of data between 2008 and 2024 obtained from Thomson Reuters Eikon DataStream. The data were analyzed using the two-step Generalized Method of Estimation (GMM) due to endogeneity identified in the data. The study discovered that green financing initiatives, policies for emission reduction, and sustainable product initiatives had a positive and significant impact on business financial performance. The study also revealed that environmental investment initiatives negatively and significantly impacted business financial performance. Investing in green finance and sustainable products enhances financial performance by fostering investor trust and bolstering corporate reputation, fortifying firms. Adhering to international sustainability standards promotes long-term value creation and market alignment. To mitigate financial strain, environmental investments necessitate stringent cost management. An equitable strategy ensures that, by mitigating risks, sustainability measures enhance profitability. By meticulously integrating these projects, companies can achieve environmental and financial benefits while sustaining a competitive advantage in a rapidly evolving corporate landscape.

Keywords: business financial performance; green financing; sustainable finance; policy for emission reduction; research and development (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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