An efficiency perspective on carbon emissions and financial performance
Abstract
International policy actions to constrain carbon emissions create substantial risks and opportunities for firms. In particular, production processes that are relatively high emitting will be more sensitive to uncertain costs of emitting carbon dioxide and might further reflect productive inefficiencies. We employ a productive efficiency model to evaluate firms’ carbon emission levels relative to those of best practice (efficient) peers with comparable production structures. By accounting for total factor productivity and sector-relative performance aspects, this measure of carbon efficiency helps to quantify and rank firms’ relative dependency on carbon in the production process. We investigate the impact of carbon efficiency on various financial performance outcomes, and evaluate the role of general resource efficiency in explaining these impacts. Using an international sample of 1,572 firms over the years 2008-2016, we find superior financial performance in carbon efficient (best-practice) firms. On average, a 0.1 higher carbon efficiency is associated with a 1.0% higher profitability and 0.6% lower systematic risk. While carbon efficiency closely relates to resource efficiency, it also has distinct financial performance impacts, particularly lowering systematic risk. Overall, our findings suggest that carbon efficient production can be valuable from both operational and risk management perspectives.
Citation
Trinks , A , Mulder , M & Scholtens , B 2020 , ' An efficiency perspective on carbon emissions and financial performance ' , Ecological Economics , vol. 175 , 106632 . https://doi.org/10.1016/j.ecolecon.2020.106632
Publication
Ecological Economics
Status
Peer reviewed
ISSN
0921-8009Type
Journal article
Collections
Items in the St Andrews Research Repository are protected by copyright, with all rights reserved, unless otherwise indicated.