Impact of carbon emission on financial performance: empirical evidence from India

Abstract

PurposeThe purpose of this study is to examine the effect of carbon emission on accounting and market-based financial performance of Indian companies.Design/methodology/approachFirms reporting emission data on Carbon Disclosure Project (CDP) are considered for empirical analysis and the data have been collected for the period from 2013 to 2019. The study adopts Heckman's regression model to control for self-selection bias and it also examines the moderating role of environmental sensitivity through industry-wise analysis. The results are also checked for potential endogeneity using generalized methods of moments estimation.FindingsPrimarily, the findings postulate a significant negative impact of carbon emissions on both measures of financial performance. Further, it also determines that environmentally sensitive firms are more exposed to such negative influence of emission compared to nonsensitive companies.Research limitations/implicationsCurrent research will enhance the understanding of managers about the economic impact of carbon emission, especially in an economy where emissions are not completely regulated. The study provides an economic rationale to the industries to reduce emission volume. It will also assist regulators to draft environmental policies by considering environmental sensitivity. It should be noted that the study is based on the Indian firms that have reported emission data on the CDP during the study period.Originality/valueThe present study addresses one of the most important but less explored issues of environmental research in one of the largest emerging economies of the South Asian region. The study presents a comprehensive view by covering accounting as well as market-based indicators along with the moderating effect of environmental sensitivity.

The Level of Carbon Emissions and Climate Change Engagement Through Corporate Reporting: An Analysis of Main Power Producer in Malaysia

“…Mahapatra, Schoenherr, and Jayaram (2021) suggested that companies that have a high market capitalization that reported their carbon footprint information did not affect the financial performance of the companies as the researchers investigated the factors that lead towards carbon footprint reporting. Consistent with Desai, Raval, Baser, and Desai (2021), they found that there is no relationship between reporting carbon emissions and financial performances among the top 200 companies in India. Miklosik and Evans (2021) stated that the amount of carbon information provided by the companies in the reporting varies according to the size of the company.…”

The Effect of Sustainability Report Disclosure Compliance on the Company's Financial Performance

“…The results of this study are in accordance with research conducted by Buallay (2019), which showed that the sustainability disclosure indicators tended to be higher with banks that had more assets. And also Desai et al (2022), said firm size has a positive impact on disclosure. It predicts that large firms are more expected to disclose data as compared to small firms.…”

Voluntary Disclosure: The Role of Institutional Ownership as a Moderating Variable Between Carbon Emission Disclosure to Financial Performance

“…The disclosure of carbon emissions in past research has shown that carbon disclosures have a positive effect on financial performance (Capece, Pillo, Gastaldi, Levialdi, and Miliacca 2017;Datt, Luo, and Tang, 2019;Gabrielle and Toly, 2019;Gallego-Álvarez et al, 2015;Ganda, 2018;Hardiyansah and Agustini 2021;Lee and Cho, 2021;Siddique, Akhtaruzzaman, Rashid, and Hammami, 2021). Other studies showed different results (Desai et al, 2022;Ganda and Milondzo 2018;Han, Lee, and Wang 2020;Houqe, Opare, Zahir-ul-Hassan, and Ahmed 2022;Kurnia, Nur, and Putra 2021;Luo 2017;Muhammad and Aryani 2021;Saka and Oshika 2014;Sun, Wang, and Li 2022).…”

“…Increased carbon dioxide production will lead to increasingly worrying environmental problems as it will impact environmental and health problems (Lee, Min, and Yook 2015;Tang, Sun, Ma, Bai 2020). Carbon dioxide can be caused by a company's operating activities, mining and energy companies are the main sources of carbon emissions (Aguirre-Villegas and Benson 2017; Othman and Jafari 2016;Desai, Raval, Baser, and Desai 2022). Governments and some groups will put more pressure on environmentally exposed companies (Alfani and Diyanty 2020).…”