What is it about?
This study examines the relationship between climate change and firm performance in the context of European publicly listed companies. We conduct a multivariate regression analysis using Corporate Environmental Performance and Corporate Financial Performance as independent and dependent variables, respectively. A financial statement analysis of European publicly traded firms with high environmental performance shows that they register high corporate financial performance. Environmental performance positively impacts financial performance (β = .013, p-value < .01). Return on equity (ROE) is positively related to firm size and CE1 (carbon emissions) intensity but negatively linked to CE2, CE1 & 2, and capital intensities. However, return on investment (ROI) is positively correlated with all the control variables, including capital intensity, firm size, and growth. The results confirm that the firm-wide adoption of environmental practices reduces environmental risks, and thereby lowers production costs and increases profits. These findings can guide policymakers and organizations pursuing climate change mitigation and sustainable business solutions.
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Why is it important?
In this scientific context, climate change has been perceived as one of the factors that adversely affect firms' operations; it increases production costs in the short-term, impacting companies' financial position (United Nations Framework Convention on Climate Change, 2007). Other studies by A. A. King and Lenox (2001) and Murphy (2002) argued that fewer carbon emissions and their proper disclosure in the accounting books are positively linked to increased profits and market value of a firm. Thus, by considering European publicly listed firms, this study determines whether climate change affects firms' financial performance. Specifically, we carried out a multivariate regression analysis (MRA) to estimate the impact of corporate environmental performance variables (CEP) on corporate financial performance (CFP). The MRA is considered useful for analyzing the relationship between two or more dependent variables (Anser, Zhang, & Kanwal, 2018; Hidalgo & Goodman, 2013).
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This page is a summary of: Impact of climate change mitigation policies on corporate financial performance: Evidence‐based on European publicly listed firms, Corporate Social Responsibility and Environmental Management, June 2020, Wiley, DOI: 10.1002/csr.1971.
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