Assessing the Nexus between Corporate Carbon Emission and Financial Performance: Empirical Evidence from the Malaysian Manufacturing Sector

HRMARS - This study examines the relationship between carbon footprint emissions and firm financial performance among selected manufacturing companies in Malaysia. Firm financial performance is measured using return on assets (ROA) and return on equity (ROE), while carbon performance is represented by Scope 1, Scope 2, Scope 3, and total CO?e emissions. The study is underpinned by the Natural Resource-Based View, Legitimacy Theory, and Stakeholder Theory, which explain the role of environmental capability, corporate legitimacy, and stakeholder expectations in shaping financial outcomes. Using a quantitative research approach, this study applies descriptive statistics, correlation analysis, fixed effects regression, and random effects regression to analyse the data. The descriptive findings show that the sampled manufacturing firms recorded positive average financial performance, with mean ROA of 10.81% and mean ROE of 20.40%. However, the relatively high standard deviations indicate substantial variation in financial performance across firms. The carbon emission results also reveal considerable differences in Scope 1, Scope 2, Scope 3, and total CO?e emissions, with Scope 3 emissions showing the highest variation. This suggests that carbon performance among Malaysian manufacturing firms is uneven and may be influenced by differences in firm size, production activities, supply chain practices, and emission reporting. The findings indicate that carbon footprint emissions are relevant in explaining firm financial performance, although its effect may differ across emission scopes and financial performance indicators. The study highlights the importance of analysing Scope 1, Scope 2, and Scope 3 emissions separately rather than treating carbon emissions as a single general measure. The findings provide implications for manufacturing firms, investors, and policymakers by emphasising the need for stronger carbon management, improved carbon disclosure, and better integration of sustainability considerations into financial decision making.