Carbon emission reduction: the impact on the financial and operational performance of international companies

Abstract

Over the last few decades, companies operate in an environment in which exercising responsibility is a prerequisite for competing. Owing to the growing social concern for ethical, social, and environmental issues, the question of the impact of emissions trading on firm competitiveness has acquired special relevance in recent years. This research analyzes the impact of the variation in carbon dioxide emissions on financial and operational performance. By using international data consisting of 89 companies for the period 2006–2009, the findings show a reduction in emissions that generates a positive impact on financial performance. In addition, certain control variables are considered such as company size, sector, growth, sustainability index, and legal system, while a panel data methodology is used as the analysis technique. Overall, this research shows that companies promote greater environmental behaviour in order to obtain higher financial performance. Nonetheless, the findings do not show evidence for operational performance. This study contributes to the literature on carbon emission reduction and corporate performance. Moreover, it complements previous literature in the sense that results obtained show a reduction in emissions that generates a positive impact on financial performance.