Moderation of Clean Energy Innovation in the Relationship between the Carbon Footprint and Profits in CO₂e-Intensive Firms: A Quantitative Longitudinal Study

Abstract

This paper sought to analyze the moderating effect of clean energy innovation on the relationship between corporate carbon footprint and corporate profits in fossil fuel intensive industrial sectors in which it is “hard to abate” CO₂e emissions. We used a longitudinal design consisting of a panel study with a structural equation modeling (SEM) method, based on partial least squares. For the analysis of longitudinal moderation, this paper employed a Bayesian multiple-indicator latent growth curve model (B-LGC model). A global sample was used, consisting of 7827 firm-year observations between 2015 and 2021 for 167 international firms. The results showed that the corporate carbon footprint had a very significant impact on corporate profits and that innovations in clean energy—measured as renewable energy consumption—positively moderate the relationship between Scope 3 value chain greenhouse gas emissions (according to the Greenhouse Gas (GHG) Protocol) and the gross profit margin obtained. In addition to the academic contributions made by the moderating effect of clean energy innovation, these findings imply that a more detailed understanding of total value chain emissions (Scope 3 CO₂e) among executives and managers at high CO₂e-emitting companies offers an effective mechanism for obtaining higher profits and creating competitive advantages, while at the same time achieving a net zero emissions strategy. More importantly, public policymakers will be able to use these results to revise CO₂e-related policies, paying closer attention to the Scope 3 CO₂e emissions produced by these companies to design regulatory and control mechanisms that stimulate clean energy innovation.