Investigating the link between green finance, environmental orientation, and carbon neutrality: A panel study of the metal extraction sector

Abstract

In the natural resources exploitation sector, metal industry is considered as one of the major carbon emitters. In this context, this study aims to explore the role of green finance and environmental orientation in improving the carbon neutrality of the firms operating in this sector. The data was collected from two large economies' metal sectors: the People's Republic of China (PRC) and India. Five years of data from 2015 to 2019 was collected from 98 firms from financial statements and other sources. Given the nature of the data, panel cointegration was employed to analyze the developed model. Keeping in view the findings of these three diagnostic tests, it was clear that our model did not fully meet the assumptions to apply a normal panel. It led us to apply a panel-corrected standard error (PCSE) approach, which accounts for the violations of assumptions (autocorrelations, heteroscedasticity, and cross-sectional dependence) as identified in the results of diagnostic tests. The PCSE approach the can preserve the OLS parameter estimates while adjusting the standard errors (SE) to counter the issues found in OLS estimation. These results explain that the provision of green finance can help improve the carbon neutrality of firms in the metal sector of the PRC. Further, the results on the impact of environmental orientation on carbon neutrality are also significant, showing environmental orientation's instrumental role in improving carbon neutrality. Further, the interaction role of environmental orientation in the association between green finance and carbon neutrality is tested creating an interaction term by multiplying both variables. The results show a statistically significant role of environmental orientation in the association between green finance and carbon neutrality. These findings coefficient that, in the case of the PRC, the joint effect of green finance and environmental orientation is statistically significant. The results on the impact of environmental orientation are also significant, confirming its instrumental role in improving carbon neutrality. In short, our findings, suggest that by embracing such an environmental orientation, organizations can position themselves as leaders in carbon neutrality and contribute to a more sustainable future.