Signaling Sustainability: The Impact of Sustainable Finance on Dividend Policy Among Firms Listed on the London Stock Exchange

Abstract

ABSTRACT The UK regulatory framework mandates that firms report their social and environmental implications, ensuring that sustainability factors are incorporated into policy formulation, including dividend policies. For this reason, the study examined how sustainable finance of the firms listed on the London Stock Exchange impacts dividend policy. The study used 17 years of data from n143 companies between 2007 and 2023, obtained from Thomson Reuters Eikon DataStream. The data were analyzed using the generalized method of movement (GMM) due to its capacity to overcome and address the issues of endogeneity and autoserial correlation in the datasets, leading to robust, unbiased, and reliable estimation results. The study discovered that green bond issues had a positive and significant impact on dividend yield and retention. Also, the findings reveal that environmental expenditure and policy for emission reduction had a negative and significant impact on dividend yield and retention. Furthermore, the moderating relationship between green bond issues, environmental expenditures, and leverage revealed a positive and significant impact on dividend yield and retention. The companies should retain financial viability while promoting environmental measures. Environmental policies that foster sustainable development without compromising the company's capacity to sustain cash flow or dividends are essential. Therefore, the management should rigorously assess environmental investments to guarantee that selected projects yield returns consistent with environmental goals and shareholder expectations.