Relationship between carbon emissions and financial performance: fixed-effects panel model focused on sectoral and regulatory heterogeneity

This study analyzes the influence of direct carbon emissions (Scope 1), those emitted indirectly through energy consumption (Scope 2), and those occurring within the value chain (Scope 3) on corporate profit margin (measured as net income-to-assets ratio, with ROA as robustness check), examining the dual moderating roles of environmental regulation and sectoral heterogeneity. Using a fixed-effects panel model on a sample of 250 global companies from the Forbes Global 2000 Lists for 2020–2023, we find a significant negative association between emissions volume and financial performance. This economic impact is particularly pronounced in the chemical and utilities sectors, whereas the oil and gas sectors exhibit atypical dynamics, characterized by resilience. Contrary to expectations, cross-country regulatory stringency does not significantly moderate this relationship. The findings, subject to the specific temporal and regulatory scope analyzed, suggest that sectoral structural factors appear more consistently associated with emissions-profitability variation than measured regulatory stringency, providing preliminary evidence consistent with the importance of industry-specific approaches to decarbonization.