This article uses econometric techniques to examine the effect of corporate carbon performance on corporate financial performance. I extend the existing literature in this research field by differentiating between two measurement perspectives: carbon performance expressed as annually reported carbon dioxide (CO2) emission equivalents and improvements in carbon performance over time. Thereby, the article re‐addresses the research question ‘when and how does it pay to be green?’ in the context of carbon emissions and climate change mitigation. Using a nonlinear modeling technique, the findings indicate that it pays to be green for companies with superior carbon performance but not for companies with inferior carbon performance. The results also show that carbon emission mitigation is linearly and significantly positive related to return on sales (ROS) but negatively related to Tobin's q. These contradictory findings help us to understand why – in spite of growing regulatory pressure – companies have been slow to respond with effective action to tackle climate change beyond marginal efficiency improvements that correspond to ‘low‐hanging fruits’. The empirical analysis is based on an unbalanced sample of 7625 firm‐year observations covering carbon emission data (Scope 1 and Scope 2) for 1640 international firms from 2003 to 2015. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

We use meta-analytical techniques to address the question"When does it pay to be green?" Existing meta-studies in this research field cover a range of ecological issues and synthesize a variety of environmental performance measurements. This precludes a detailed examination of how differences in measurement approaches account for variations in empirical results. In order to conduct such an examination, we focus on only one ecological issue, climate change, and one particular operational performance dimension: corporate carbon performance as expressed by a firm's level of carbon dioxide (CO 2 ) emission equivalents. Our sample comprises 68 estimations from 32 empirical studies, covering a total of 101,775 observations. In addition to our examination of the causal relationship, we analyze whether differences in operationalizations of carbon performance and financial performance predetermine empirical outcomes. The meta-analytic findings indicate that carbon emissions vary inversely with financial performance, indicating that good carbon performance is generally positively related to superior financial performance. The results show that relative emissions are more likely to produce statistically significant results than absolute emissions. Furthermore, market-based measures of financial performance are more positively related to carbon performance than accounting-based measures. We conclude that measurement characteristics, which were not analyzed in detail by previous meta-studies, may present a great source of cross-study variability.

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To assess the robustness and sensitivity of the findings in Delmas, Nairn-Brich, and Lim, we conduct a replication and an extension study. In the replication, we use their research design but analyze another time frame. In our extension, we furthermore expand the geographical scope, and use another carbon performance measure as well as a different set of control variables. We show that the finding that higher carbon emissions are associated with higher short-term financial performance is very robust. By contrast, we also find strong evidence for higher carbon emissions being associated with higher long-term financial performance. This outcome is supported by several supplementary analyses and robustness checks. We derive theoretical implications for the debate on tackling grand challenges. Since there seem to be negative financial performance implications for firms reducing carbon emissions, we highlight a clear need for further policy intervention to pave the way for a low-carbon economy.

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