Do emissions reduction initiatives improve financial performance? Empirical analysis of moderating factors

Abstract

Purpose This study aims to examine the relationship between carbon reduction initiatives and financial performance. Additionally, it explores potential moderating variables, such as corporate social responsible (CSR) strategy and corporate governance practices, that may strengthen the link between carbon reduction initiatives and financial performance. Design/methodology/approach The empirical analysis is conducted using 1,740 firm-year observations from UK firms listed on the FTSE 350. Data on carbon emissions and firm-specific characteristics are obtained from the Refinitiv Eikon database for the period 2011–2020. Various econometric techniques, including ordinary least squares and system generalized method of moments, are used to examine the relationship between carbon reduction initiatives and financial performance. Additionally, alternative samples are used to further explore this relationship. Findings The author observes a significantly positive association between carbon reduction initiatives and financial performance in this study. Additionally, the significance of this relationship is found to be present specifically after the announcement of the Paris Agreement. Furthermore, a channel analysis reveals that moderating factors like CSR strategy and corporate governance quality influence this relationship. Practical implications The study underscores the importance of carbon reduction initiatives for sustainable business growth and financial performance. Managers can use these insights to prioritize investments in sustainable practices. Policymakers should consider implementing supportive regulations to incentivize companies to adopt carbon reduction strategies. Originality/value This study adds value to the existing body of literature by empirically examining the moderating role of CSR strategy and best corporate governance practices in the relationship between carbon reduction initiatives and financial performance. The findings contribute to a deeper understanding of how these factors interact and influence the outcomes.

Social reputation, loan contracting and governance mechanisms

“…The sample covers the period between 2002 and 2021, during which CSR award data were available in the Thomson Reuters Eikon/Refinitiv database. We retrieved the data from the Thomson Reuters Eikon/Refinitiv database as it has been a reliable and rich data source for CSR studies in numerous prior studies (Uyar et al, 2021;Issa, 2023;Issa and Hanaysha, 2023). It includes Loan contracting and governance mechanisms 48,471 observations affiliated with nine sectors and 49 countries.…”