CO ₂ Emissions and Firm Performance: Assessing the Effectiveness of the Paris Agreement and the Moderating Role of ESG Performance and ISO 14001 Certification

ABSTRACT This study primarily aims to examine the effect of CO 2 emissions on firms performance in the first place. Additionally, it seeks to explore the moderating effect of ESG performance on the relationship between CO 2 emissions and firm performance. Based on a sample of companies listed on the S&P 500 over the period 2011–2021, this study uses a panel fixed effect model to highlight these assumptions. This study finds that CO 2 emissions have a significant negative association with firm performance. In addition, strong ESG performance plays a moderating role as it is able to mitigate the negative impact of CO 2 emissions on firm performance. This work makes multiple literary contributions. Initially, the study opens up a fresh field of research by looking at how CO 2 emissions affect firm performance in various scenarios like the conclusion of the Paris Agreement, the withdrawal of the United States from the Paris Agreement, and the adoption of the ISO 14001 standard. Second, the exploration of the moderating effect of ESG performance remains unique in this analysis as it helps to shape the relationship between CO 2 emissions and firm performance. From a policy perspective, the results highlight the need for strengthened climate‐related regulations and the promotion of ESG practices and environmental certifications (e.g., ISO 14001), which can incentivize firms to reduce emissions while safeguarding financial performance.