The relationship between carbon performance and financial performance: evidence from China

Area of Science:

• Environmental Economics
• Corporate Finance
• Sustainable Development

Background:

• Global warming necessitates low-carbon development, increasing focus on corporate environmental responsibility.
• Disagreement exists on the carbon performance-financial performance link due to varied research methodologies.
• High-energy consumption industries face scrutiny regarding their environmental and financial outcomes.

Purpose of the Study:

• To investigate the dynamic relationship between carbon performance and financial performance.
• To analyze how ownership structure moderates this relationship in Chinese listed companies.
• To provide empirical evidence for motivating corporate carbon reduction strategies.

Main Methods:

• System Generalized Method of Moments (GMM) applied to panel data.
• Analysis of 352 Chinese-listed companies in high-energy consumption sectors (2013-2020).
• Examination of intertemporal effects and ownership structure heterogeneity.

Main Results:

• Carbon performance significantly improves financial performance with a time lag.
• Financial performance positively impacts carbon performance without a time lag.
• Non-state-owned firms show a stronger carbon performance-to-financial performance link; state-owned firms exhibit a stronger financial performance-to-carbon performance link.

Conclusions:

• A bidirectional, dynamic relationship exists between carbon and financial performance.
• Ownership structure is a critical factor influencing the effectiveness of carbon strategies.
• Findings support policies encouraging corporate carbon performance for sustainable development and China's carbon neutrality goals.