Sustainable supply chain management operations: does sustainable environmental disclosure matter for banks’ financial performance in Nigeria?

The research explores the relationship between sustainable supply chain management (SSCM) and the financial performance of banks in Nigeria, a previously under-researched area. The increasing global emphasis on sustainable development and environmental awareness has pressured financial institutions to adopt sustainable practices, yet the financial implications for banks remain a key concern. Regulators also mandate adherence to specific standards in banking operations and fund allocation. Existing research has examined the link between sustainability reporting, corporate social responsibility (CSR), and firm financial performance, but few studies have focused specifically on the banking sector's SSCM practices and their impact on financial outcomes. This study addresses this gap by empirically analyzing the dynamic relationship between SSCM operations and the financial performance of DMBs in Nigeria, a significant emerging market economy. The choice of the Nigerian banking sector is justified by its central role in the economy and its extensive involvement in financing various sectors, including those with significant environmental risks (e.g., oil and gas). Previous studies concentrating on corporate social responsibility or sustainability reporting often neglected the banking sector. This research aims to bridge this knowledge gap and contribute to the understanding of the SSCM-financial performance nexus in emerging markets.

The literature review examines existing theories and research related to SSCM and its impact on firm performance. The Global Reporting Initiative (GRI) guidelines underscore the responsibility of financial institutions for their environmental, social, and economic impacts. The banking sector's involvement in financing enterprises across various industries, particularly those with high environmental risks (e.g., oil and gas, extractive industries), makes SSCM practices crucial in mitigating sustainability threats. The review analyzes the stakeholder theory, which emphasizes the diverse interests of stakeholders influenced by a firm's operations. The signaling theory is also considered, highlighting how SSCM practices can convey information to stakeholders, reducing information asymmetry. The existing literature on SSCM and its impact on firm performance shows diverse results, with some studies reporting positive relationships and others reporting negative relationships. Many studies are concentrated in developed economies and specific sectors, making research on the Nigerian banking sector's SSCM and financial performance particularly valuable. The review also discusses different performance metrics (e.g., ROA, Tobin's Q) and their relevance to evaluating banks' financial health. Existing literature highlighted the importance of considering the environmental, economic, and social dimensions of sustainability, underscoring the need for a comprehensive assessment of SSCM practices on financial outcomes in the banking sector.

This study employs an ex-post facto research design, utilizing annual data from seven Nigerian DMBs (Access Bank Plc, Fidelity Bank Plc, First Bank Nigeria Plc, First City Monument Bank Plc, United Bank of Africa Plc, Guaranty Trust Bank Plc, and Zenith Bank Plc) listed on the Nigerian Stock Exchange for the period 2005-2023. The data were sourced from the London Stock Exchange Group (LSEG) workspace. Two financial performance indicators are used: Return on Assets (ROA) and Tobin's Q (market value). The independent variables include an SSCM environmental disclosure index (0-100%), bank size (total revenue), capital structure, and corporate social responsibility (CSR). The study employs several econometric techniques. First, a Lagrange Multiplier (LM) test for cross-sectional dependence is conducted, followed by second-generation panel unit root tests (CADF and CIPS) to determine the stationarity of the variables. Given the possibility of variables with different orders of integration, a Pedroni and Kao cointegration test is performed to identify long-run relationships, and a slope homogeneity test is conducted to assess whether the effects of the independent variables are consistent across banks. Finally, a Cross-sectional Dependence Autoregressive Distributed Lag (CS-ARDL) model is used to estimate both the short-run and long-run impacts of SSCM environmental disclosure on the DMBs' financial performance, considering the potential for cross-sectional dependence and slope heterogeneity. This model allows for investigating the dynamics of the relationship.

The empirical analysis reveals significant cross-sectional dependence among the variables. The panel unit root tests indicate a mix of I(0) and I(1) variables, justifying the use of the CS-ARDL model. Both Pedroni and Kao cointegration tests confirm the existence of a long-run relationship between SSCM and financial performance. The slope homogeneity test reveals significant heterogeneity across banks. The CS-ARDL results show that SSCM environmental disclosure has a significant and positive impact on both ROA and Tobin's Q, indicating that improved SSCM practices enhance banks' profitability and market value in both the short and long run. Bank size shows a positive and significant impact on ROA in the short run but not long run. Capital structure also exhibits a significant impact on both ROA and Tobin's Q. Interestingly, CSR's short-term impact on ROA is negative, while its long-term effect on Tobin's Q is positive. The error correction term is negative and significant in both models, indicating a relatively fast adjustment process back to long-run equilibrium after any shocks.

The findings support the hypothesis that SSCM environmental disclosure positively influences the financial performance of DMBs in Nigeria. This highlights the importance of integrating sustainable practices into banking operations to enhance profitability and market value. The results align with stakeholder theory, suggesting that banks’ commitment to environmental sustainability strengthens relationships with stakeholders and improves their overall performance. The heterogeneity observed across banks indicates that the effects of SSCM may vary depending on specific bank characteristics or strategies. The positive long-run impact of CSR on market value suggests that banks’ investment in CSR activities contributes to long-term value creation, potentially through enhanced reputation and risk mitigation. The negative short-run impact of CSR on ROA may be attributable to the initial costs associated with implementing CSR initiatives.

This study demonstrates the significant and positive relationship between SSCM environmental disclosure and the financial performance of DMBs in Nigeria. Banks should prioritize the integration of SSCM principles into their strategies for long-term financial success. The findings highlight the importance of environmental sustainability as a driver of bank value and profitability. Further research could explore the social and governance aspects of SSCM and the mediating roles of various factors in the relationship between SSCM and financial performance. A broader geographical scope and inclusion of more banks would enhance generalizability.

The study's limitations include the use of a non-probability sampling method (availability sampling), focusing only on seven banks due to data availability, and concentrating solely on the environmental aspect of SSCM. The use of a relatively small sample size might limit the generalizability of the findings to the broader Nigerian banking sector. Future research should employ larger, more representative samples and consider social and governance aspects of sustainable financing to improve the robustness and generalizability of the results.