How Do Carbon Emissions Affect the Performance of Listed Latin American Firms? The Moderating Effect of Financial Slack

ABSTRACT This study analyses the association between carbon emissions and financial performance in Latin American firms. The scientific literature on this topic is limited, with little evidence available in this geographical region. This study aims to address this research gap by testing hypotheses focused on analysing how Scope 1, 2 and 3 carbon emissions relate to financial performance in Latin American listed firms. In addition, it examines how this relationship may be moderated by financial slack. The sample consists of 223 firms from Argentina, Brazil, Chile, Colombia, Mexico and Peru, covering the period between 2018 and 2024. Regression models are applied, and the results reveal that Scope 1 emissions have a positive and statistically significant relationship with the financial indicators ROA and ROE. Scope 3 emissions show a negative association with ROA and ROE, while their relationship with Tobin's Q is positive and significant. In contrast, Scope 2 emissions do not show a significant relationship with any of the financial performance indicators. Furthermore, the empirical analysis shows the moderating effect of financial slack on the relationship between Scope 1 and 3 emissions and ROA and Tobin's Q . These results offer valuable insights for managers, firms and policymakers aiming to align business performance with environmental objectives and carbon mitigation efforts.