The South African Firms' relationship between carbon emissions and corporate financial performance.

Abstract

Over the last decades, the primary objective of the business was to purely to generate profit for shareholders. However, this paradigm is shifting due to growing pressures from stakeholders and regulators on companies to manage their carbon emissions and adopt a triple bottom-line framework that balances economic objectives with social and environmental objectives. In line with this, the study examines the relationship between financial performance and carbon emissions for 17 JSE-listed industrial metal and mining companies over the period 2018 to 2022. Applying panel data analysis, financial performance measures (return on assets, Tobin’s Q, and return on equity) were used as dependent variables. As a carbon emissions measure, carbon intensity was used as an independent variable, with leverage, firm growth and size identified as control variables. The findings indicate that entities that significantly emit carbon generally have weaker financial performance, as evidenced by the negative relationship. This implies that companies that engage in carbon emissions reduction activities can increase their financial performance. The study offers valuable insight for companies, governments, and policymakers and contributes to the existing literature. Future studies are encouraged to include different studies, extend the time frame and apply different financial performance indicators.