Sustainable environmental practices and financial performance: Evidence from listed small and medium‐sized enterprise in the United Kingdom

Abstract In this article, we investigate the financial implication of sustainable environmental practices on UK small and medium‐sized enterprises (SMEs)–traded firms. Existing literature indicates that there is a direct relationship between sustainable environmental practices and financial performance. However, studies looking at this relationship have focused mainly on large firms with little attention paid to SMEs. Further, those looking at environmental and financial performance relationships have often used a single measure of performance in their studies. This study bridges these research gaps by focusing on listed SMEs in the United Kingdom using multiple measures of sustainable environmental policy indices on a panel of 201 SMEs on the Alternative Investment Market from 2011 to 2016. Evidence from our panel data analysis suggests significant and a nonlinear (concave) relationship between sustainable environmental practices and firms' financial performance. Specifically, energy efficiency practices, greenhouse gases, material, and resource efficiency revealed an inverted U‐shaped relationship with financial performance. The results will offer guidance to management in terms of allocating resources to sustainable environmental practices investment.