IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i11p4898-d1665101.html
   My bibliography  Save this article

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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Hani A. Omran Elarabi & Wagdi Khalifa, 2025. "Impact of Sustainable Finance on Business Financial Performance: Insight from London Stock Exchange Firms," Sustainability, MDPI, vol. 17(11), pages 1-28, May.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:4898-:d:1665101
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/11/4898/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/11/4898/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lee, Chi-Chuan & Lee, Chien-Chiang, 2022. "How does green finance affect green total factor productivity? Evidence from China," Energy Economics, Elsevier, vol. 107(C).
    2. Richard Arhinful & Leviticus Mensah & Halkawt Ismail Mohammed Amin & Hayford Asare Obeng, 2024. "The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: evidence from non-financial companies listed on the Frankfurt Stock Exchange," Future Business Journal, Springer, vol. 10(1), pages 1-24, December.
    3. Yuehong Lu & Zafar A. Khan & Manuel S. Alvarez-Alvarado & Yang Zhang & Zhijia Huang & Muhammad Imran, 2020. "A Critical Review of Sustainable Energy Policies for the Promotion of Renewable Energy Sources," Sustainability, MDPI, vol. 12(12), pages 1-31, June.
    4. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    5. Guang-Wen Zheng & Abu Bakkar Siddik & Mohammad Masukujjaman & Nazneen Fatema, 2021. "Factors Affecting the Sustainability Performance of Financial Institutions in Bangladesh: The Role of Green Finance," Sustainability, MDPI, vol. 13(18), pages 1-27, September.
    6. Viktoriia Myronchuk & Oleksandr Yatsenko & Dmytro Riznyk & Olena Hurina & Andrii Frolov, 2024. "Financing Sustainable Development: Analysis of Modern Approaches and Practices in the Context of Financial and Credit Activities," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 317-329, September.
    7. Chen, Yufeng & Ma, Yanbai, 2021. "Does green investment improve energy firm performance?," Energy Policy, Elsevier, vol. 153(C).
    8. David Gilchrist & Jing Yu & Rui Zhong, 2021. "The Limits of Green Finance: A Survey of Literature in the Context of Green Bonds and Green Loans," Sustainability, MDPI, vol. 13(2), pages 1-12, January.
    9. Kang Tan & Abu Bakkar Siddik & Farid Ahammad Sobhani & Muhammad Hamayun & Mohammad Masukujjaman, 2022. "Do Environmental Strategy and Awareness Improve Firms’ Environmental and Financial Performance? The Role of Competitive Advantage," Sustainability, MDPI, vol. 14(17), pages 1-24, August.
    10. Rosa Dangelico & Devashish Pujari, 2010. "Mainstreaming Green Product Innovation: Why and How Companies Integrate Environmental Sustainability," Journal of Business Ethics, Springer, vol. 95(3), pages 471-486, September.
    11. Giannakis, Mihalis & Papadopoulos, Thanos, 2016. "Supply chain sustainability: A risk management approach," International Journal of Production Economics, Elsevier, vol. 171(P4), pages 455-470.
    12. Xiaokai Meng & Ghulam Muhammad Shaikh, 2023. "Evaluating Environmental, Social, and Governance Criteria and Green Finance Investment Strategies Using Fuzzy AHP and Fuzzy WASPAS," Sustainability, MDPI, vol. 15(8), pages 1-19, April.
    13. Georg Weinhofer & Volker H. Hoffmann, 2010. "Mitigating climate change – how do corporate strategies differ?," Business Strategy and the Environment, Wiley Blackwell, vol. 19(2), pages 77-89, February.
    14. Leviticus Mensah & Murad Abdurahman Bein, 2023. "Sound Corporate Governance and Financial Performance: Is There a Link? Evidence from Manufacturing Companies in South Africa, Nigeria, and Ghana," Sustainability, MDPI, vol. 15(12), pages 1-24, June.
    15. Di Wang & Daozhi Zhao & Fang Chen, 2023. "Research on Financing Strategy of Green Energy-Efficient Supply Chain Based on Blockchain Technology," Energies, MDPI, vol. 16(7), pages 1-23, March.
    16. Abhijeet Ghadge & Hendrik Wurtmann & Stefan Seuring, 2020. "Managing climate change risks in global supply chains: a review and research agenda," International Journal of Production Research, Taylor & Francis Journals, vol. 58(1), pages 44-64, January.
    17. Lior, Noam, 2010. "Sustainable energy development: The present (2009) situation and possible paths to the future," Energy, Elsevier, vol. 35(10), pages 3976-3994.
    18. Wang, Baixun & Zhao, Wenjuan, 2022. "Interplay of renewable energy investment efficiency, shareholder control and green financial development in China," Renewable Energy, Elsevier, vol. 199(C), pages 192-203.
    19. Harrison, Jeffrey S. & Wicks, Andrew C., 2013. "Stakeholder Theory, Value, and Firm Performance," Business Ethics Quarterly, Cambridge University Press, vol. 23(1), pages 97-124, January.
    20. Jung Wan Lee & Young Min Kim & Young Ei Kim, 2018. "Antecedents of Adopting Corporate Environmental Responsibility and Green Practices," Journal of Business Ethics, Springer, vol. 148(2), pages 397-409, March.
    21. Ming-Liang Yeh & Hsiao-Ping Chu & Peter Sher & Yi-Chia Chiu, 2010. "R&D intensity, firm performance and the identification of the threshold: fresh evidence from the panel threshold regression model," Applied Economics, Taylor & Francis Journals, vol. 42(3), pages 389-401.
    22. Eltayeb, Tarig K. & Zailani, Suhaiza & Ramayah, T., 2011. "Green supply chain initiatives among certified companies in Malaysia and environmental sustainability: Investigating the outcomes," Resources, Conservation & Recycling, Elsevier, vol. 55(5), pages 495-506.
    23. Robert Padgett & Jose Galan, 2010. "The Effect of R&D Intensity on Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 93(3), pages 407-418, May.
    24. Khaled Alsaifi & Marwa Elnahass & Aly Salama, 2020. "Carbon disclosure and financial performance: UK environmental policy," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 711-726, February.
    25. Fernando Gómez-Bezares & Wojciech Przychodzen & Justyna Przychodzen, 2016. "Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis," Sustainability, MDPI, vol. 8(3), pages 1-22, March.
    26. David J. Teece, 2007. "Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance," Strategic Management Journal, Wiley Blackwell, vol. 28(13), pages 1319-1350, December.
    27. Farhad Taghizadeh-Hesary & Naoyuki Yoshino, 2020. "Sustainable Solutions for Green Financing and Investment in Renewable Energy Projects," Energies, MDPI, vol. 13(4), pages 1-18, February.
    28. Richard Arhinful & Mehrshad Radmehr, 2023. "The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange," SAGE Open, , vol. 13(4), pages 21582440231, November.
    29. Mansi Jain & Gagan Deep Sharma & Mrinalini Srivastava, 2019. "Can Sustainable Investment Yield Better Financial Returns: A Comparative Study of ESG Indices and MSCI Indices," Risks, MDPI, vol. 7(1), pages 1-18, February.
    30. Saidu Koroma & Murad Bein, 2024. "The Moderating Effect of Economic Policy Uncertainty on the Relationship Between Working Capital Management and Profitability: Evidence from UK Non-Financial Firms," SAGE Open, , vol. 14(2), pages 21582440241, May.
    31. Chun-Wei Chen, 2024. "A Framework of Hybrid Method for Developing Optimal Sustainable Product Strategies and Sustainable Product Roadmap," Sustainability, MDPI, vol. 16(4), pages 1-33, February.
    32. Zhao Qi Sun & Sung Joon Yoon, 2022. "What Makes People Pay Premium Price for Eco-Friendly Products? The Effects of Ethical Consumption Consciousness, CSR, and Product Quality," Sustainability, MDPI, vol. 14(23), pages 1-18, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tingko Lee & Wei‐Tsung Liu & Jun‐Xian Yu, 2021. "Does TMT composition matter to environmental policy and firm performance? The role of organizational slack," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 196-213, January.
    2. Li, Jiaman & Dong, Kangyin & Taghizadeh-Hesary, Farhad & Wang, Kun, 2022. "3G in China: How green economic growth and green finance promote green energy?," Renewable Energy, Elsevier, vol. 200(C), pages 1327-1337.
    3. Richard Arhinful & Hayford Asare Obeng & Leviticus Mensah & Ebenezer Asante-Darko, 2025. "The mediating role of racial discrimination in the relationship between authentic leadership and job commitment in Ghanaian Public Organizations," Future Business Journal, Springer, vol. 11(1), pages 1-20, December.
    4. Hayford Asare Obeng & Richard Arhinful & Dagnu Haile Tessema & Japheth Ahmed Nuhu, 2025. "The mediating role of organisational stress in the relationship between gender diversity and employee performance in Ghanaian public hospitals," Future Business Journal, Springer, vol. 11(1), pages 1-19, December.
    5. Weicheng Xu & Xiaoyi Feng & Yiying Zhu, 2023. "The Impact of Green Finance on Carbon Emissions in China: An Energy Consumption Optimization Perspective," Sustainability, MDPI, vol. 15(13), pages 1-23, July.
    6. Miklesh Yadav & Nandita Mishra & Shruti Ashok, 2023. "Dynamic connectedness of green bond with financial markets of European countries under OECD economies," Economic Change and Restructuring, Springer, vol. 56(1), pages 609-631, February.
    7. Francesco Gangi & Antonio Meles & Eugenio D'Angelo & Lucia Michela Daniele, 2019. "Sustainable development and corporate governance in the financial system: Are environmentally friendly banks less risky?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(3), pages 529-547, May.
    8. Wang, Kai-Hua & Zhao, Yan-Xin & Jiang, Cui-Feng & Li, Zheng-Zheng, 2022. "Does green finance inspire sustainable development? Evidence from a global perspective," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 412-426.
    9. Chakraborty, Atreya & Gao, Lucia Silva & Sheikh, Shahbaz, 2019. "Managerial risk taking incentives, corporate social responsibility and firm risk," Journal of Economics and Business, Elsevier, vol. 101(C), pages 58-72.
    10. Danny Zhao‐Xiang Huang, 2022. "An integrated theory of the firm approach to environmental, social and governance performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1567-1598, April.
    11. Wang, Xiuli, 2023. "Exploring the role of resource industry dependence and green finance in green development efficiency in the context of post-Covid-19 period," Resources Policy, Elsevier, vol. 85(PB).
    12. Hugo Gaspar Hernandez-Palma & Dairo J. Novoa & Jorge Enrique Taboada à lvarez, 2024. "New Trends in Green Projects Aimed at Clean Energy: An Analysis of the Scientific Literature," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 278-286, November.
    13. Xuan Liu & Xuexi Huo, 2024. "Green Finance, Land Transfer and China’s Agricultural Green Total Factor Productivity," Land, MDPI, vol. 13(12), pages 1-18, December.
    14. Hunjra, Ahmed Imran & Hassan, M. Kabir & Zaied, Younes Ben & Managi, Shunsuke, 2023. "Nexus between green finance, environmental degradation, and sustainable development: Evidence from developing countries," Resources Policy, Elsevier, vol. 81(C).
    15. Satish Kumar & Dipasha Sharma & Sandeep Rao & Weng Marc Lim & Sachin Kumar Mangla, 2025. "Past, present, and future of sustainable finance: insights from big data analytics through machine learning of scholarly research," Annals of Operations Research, Springer, vol. 345(2), pages 1061-1104, February.
    16. Muhammad Nadeem & Ernest Gyapong & Ammad Ahmed, 2020. "Board gender diversity and environmental, social, and economic value creation: Does family ownership matter?," Business Strategy and the Environment, Wiley Blackwell, vol. 29(3), pages 1268-1284, March.
    17. Laura Corazza & Simone Domenico Scagnelli & Chiara Mio, 2017. "Simulacra and Sustainability Disclosure: Analysis of the Interpretative Models of Creating Shared Value," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(5), pages 414-434, September.
    18. Huawei Tian & Abu Bakkar Siddik & Farid Ahammad Sobhani, 2024. "From commitment to action: unraveling the pathways from top management commitment to environmental sustainability in the Chinese banking sector," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    19. Lingling Xu & Tingting Tian, 2024. "Blockchain-enabled enterprise bleaching green regulation banking evolution game analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(11), pages 27457-27483, November.
    20. Xilin He & Renato Lopes da Costa & Debing Ni & Wucheng Han, 2024. "How Quasi-Internal Resources Enhance Firm Performance During Large-Scale Emergencies: The Role of Trade-Off Between CSR and Business Innovations," Sustainability, MDPI, vol. 16(21), pages 1-21, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:4898-:d:1665101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.