The Impact of Sustainability on the Creation of Organization Capital

Abstract

This study examines the dynamic mechanism through which corporate sustainability practices influence medium- to long-term financial performance via Organization Capital, using data from TOPIX500 firms. Organization Capital is estimated from financial data following the approach of Lev et al. (2009), and variables representing substantive and symbolic responses to sustainability are constructed through principal component analysis of five major indicators from Bloomberg’s ESG data. The analysis confirms that Organization Capital predicts corporate performance in the subsequent period and beyond, that substantive responses to sustainability enhance future Organization Capital, whereas symbolic responses hinder its accumulation. These findings provide quantitative evidence that the decoupling between disclosure and practice undermines value creation in the medium to long term. The study suggests the necessity of adopting a medium-to-long term time horizon in management to effectively link sustainability with corporate performance.