U-Shaped Relationship Between Greenhouse Gas Emission and Financial Performance: The Role of Voluntary Environmental Management System
DOI:
https://doi.org/10.66635/v5sfpz86Keywords:
Greenhouse gas emissions, Environmental management systems, Financial performance, Natural resource-based view, Panel quantile regression, Sustainability competitivenessAbstract
The growing importance of corporate sustainability has increased interest in understanding how environmental performance and policies influence firms' Corporate Financial Performance (CFP). Therefore, our study investigates the non-linear relationship between GHG emissions and CFP, while assessing the moderating effect of Environment Management System (EMS) adoption among A-listed Indian firms. Thus, drawing on the Natural Resource-Based View (NRBV), the study argues that environmental sustainability activities enhance firms' ability to achieve sustainable competitiveness by improving resource efficiency. Using the panel data from 2017 to 2022, the study employs Panel Quantile Fixed Effects Regression (PQR) to capture heterogeneous effects across CFP levels. The findings reveal a significant inverse U-shaped relationship between GHG emissions and CFP, indicating that while moderate emission levels initially enhance profitability through production expansion and economies of scale, excessive emissions reduce financial performance due to rising environmental costs and operational inefficiencies. The results further show that EMS adoption positively affects environmental and financial performance. Additionally, the negative interaction between EMS and GHG emissions demonstrates that EMS adoption decreases firms' dependence on emission-intensive production by achieving the highest level of CFP at lower GHG emissions. These findings suggest that firms adopting structured environmental management systems achieve profitability through resource-efficient operations rather than causing higher environmental impact. The study contributes to the sustainability literature by demonstrating that EMS adoption acts as an organizational strategy that reshapes the GHG-CFP relationship, offering important implications for managers and policymakers seeking to enhance both environmental and economic performance.
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