Is it worth it to go green? ESG disclosure, carbon emissions and firm financial performance in emerging markets

Purpose This study aims to explore how environmental investments impact the firm financial outcomes in emerging markets using a sample of 4,081 firms across 25 emerging countries from different regions from 2010–2022. Design/methodology/approach Fixed effect regressions with robust standard errors for unbalanced panel data are used to investigate the impact of Environmental, Social and Governance (ESG) disclosure scores and carbon emissions intensity on firm profitability. The authors used simultaneous quantile regressions with bootstrapped standard errors to allow for estimating parameters of different quantiles of superior and inferior financial performers. Non-linear regressions are used to test for curvilinear relationships. Two-stage least squares regressions are used to mitigate concerns of endogeneity. Findings The results reveal that firms with less emissions of carbon dioxide report high profitability, however, firms with high ESG disclosure scores do not achieve superior performance. The authors detect a positive curvilinear U-shaped relationship and determine threshold level of ESG scores. Furthermore, firms with sustainable investments have more resilient performance during COVID-19 pandemic. Research limitations/implications A comprehensive analysis of the complex effect of environmental sustainability on financial performance in emerging markets uncovers the strategic motivations behind ESG disclosures and the thresholds where environmental performance translates into financial gains. Overall, this study emphasises the significance of sustainable investments in enhancing long-term profitability and resilience in emerging markets during turbulent times. Practical implications Proactive carbon emission reduction strategies are essential to safeguard firm competitive advantage. Firm ESG investments should be considered when forecasting firm value and stock price. There is a growing need for rigid policies to promote a green economy and mitigate climate change risks. Originality/value Offers a unique setting to examine the association between firm environmental and financial performance across emerging countries and regions. It explores the non-linear shape and magnitude of this relation across high-low quantiles of profitability. It sheds new light on the impact of sustainable practices on firm resilience during COVID-19 pandemic.

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Publication Details

Journal
Review of Accounting and Finance
Published
2024-12-12
DOI
https://doi.org/10.1108/raf-01-2024-0027
Citations
22
Primary Topic
Corporate Social Responsibility Reporting
Type
article
Field-Weighted Citation Impact
12.20
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article

Is it worth it to go green? ESG disclosure, carbon emissions and firm financial performance in emerging markets

Mona A. ElBannan, Dina Hosam Gabr
22 citations
Review of Accounting and Finance
Corporate Social Responsibility Reporting
12.20
article

Is it worth it to go green? ESG disclosure, carbon emissions and firm financial performance in emerging markets

Mona A. ElBannan, Dina Hosam Gabr
article en
22 citations

Abstract

Purpose This study aims to explore how environmental investments impact the firm financial outcomes in emerging markets using a sample of 4,081 firms across 25 emerging countries from different regions from 2010–2022. Design/methodology/approach Fixed effect regressions with robust standard errors for unbalanced panel data are used to investigate the impact of Environmental, Social and Governance (ESG) disclosure scores and carbon emissions intensity on firm profitability. The authors used simultaneous quantile regressions with bootstrapped standard errors to allow for estimating parameters of different quantiles of superior and inferior financial performers. Non-linear regressions are used to test for curvilinear relationships. Two-stage least squares regressions are used to mitigate concerns of endogeneity. Findings The results reveal that firms with less emissions of carbon dioxide report high profitability, however, firms with high ESG disclosure scores do not achieve superior performance. The authors detect a positive curvilinear U-shaped relationship and determine threshold level of ESG scores. Furthermore, firms with sustainable investments have more resilient performance during COVID-19 pandemic. Research limitations/implications A comprehensive analysis of the complex effect of environmental sustainability on financial performance in emerging markets uncovers the strategic motivations behind ESG disclosures and the thresholds where environmental performance translates into financial gains. Overall, this study emphasises the significance of sustainable investments in enhancing long-term profitability and resilience in emerging markets during turbulent times. Practical implications Proactive carbon emission reduction strategies are essential to safeguard firm competitive advantage. Firm ESG investments should be considered when forecasting firm value and stock price. There is a growing need for rigid policies to promote a green economy and mitigate climate change risks. Originality/value Offers a unique setting to examine the association between firm environmental and financial performance across emerging countries and regions. It explores the non-linear shape and magnitude of this relation across high-low quantiles of profitability. It sheds new light on the impact of sustainable practices on firm resilience during COVID-19 pandemic.

Review of Accounting and FinanceVol. 24(2)
German University in Cairo (EG)
Openalex Percentile: Top 1%
Corporate Social Responsibility Reporting
12.20
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