IMPACT OF SUSTAINABILITY PRACTICES ON FIRMS’ FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN SRI LANKA

Abstract

"A vital part of the nation's financial system, the insurance sector in Sri Lanka is currently negotiating stakeholder expectations, regulatory restrictions, and competitive pressures. Integrating Environmental, Social, and Governance (ESG) principles has become increasingly popular worldwide to enhance financial performance and ensure long-term sustainability. On the other hand, nothing is known about the effects of ESG practices on Sri Lankan insurers' financial results. From 2013 to 2022, this study examines the connection between 26 insurance companies in Sri Lanka and their financial performance as shown by Return on Assets (ROA) and sustainable practices using a quantitative research design. These businesses fall within the general and life insurance categories. In particular, the study investigates how the ESG factors impact these industries' financial results. Results show that social responsibility programs have a significant impact on ROA for both life and general insurance firms, underscoring the crucial role that social practices play in influencing financial performance. On the other hand, it was discovered that environmental or governance issues did not statistically influence ROA. There are apparent sectoral differences: general insurers place more emphasis on governance issues, while life insurers typically give priority to social and environmental norms. Additionally, correlation analysis reveals fewer correlations in general insurance and moderate associations in the life insurance industry. The study emphasises how crucial it is to incorporate social initiatives like employee welfare and community involvement into fundamental business plans to boost financial performance. It suggests enhancing sustainability reporting guidelines and creating industry-specific sustainability guidelines adapted to the unique needs of general and life insurance companies. The study offers valuable insights into how sustainable practices can impact financial outcomes in Sri Lanka's insurance industry, despite its limitations, which include its reliance on secondary data and the use of only one financial performance metric (ROA). These results demonstrate the growing importance of ESG integration in achieving industry competitiveness and long-term viability.