Companies with lower greenhouse gas emissions achieve better financial performance

In view of the climate crisis, more and more companies are doing their best to reduce greenhouse gas emissions. There are many concerns about its effects on the financial performance. Will the companies that try the hardest not lose competitiveness? Professor Bert Scholtens and Jan Taeke Galama MSc o f the University of Groningen have carried out research on this. This shows that companies with fewer greenhouse gas emissions achieve better financial results. Their results have now been published in the prestigious Environmental Research Letters.

Galama and Scholtens did a meta-analysis on the period from the signing of the Kyoto Protocol in 1997 to 2019. This means that they selected and further analyzed existing studies on the relationship between greenhouse gas emissions and financial performance. In this way, they were able to make use of all the existing results in this area and draw an overarching conclusion. They have used over 100,000 observations in their analysis.

In the Kyoto Protocol, industrialized countries agreed to reduce their greenhouse gas emissions. It is the basis of, among other things, the Paris Climate Agreement and is also the basis of Dutch climate policy.

The research shows that there is a significant correlation between emissions and financial performance: companies with lower emissions do relatively better financially. This applies to different financial measures like profitability and stock market returns, albeit not to the same extent. It also applies to different emission measures and both mandatory and voluntary disclosure.

The sector in which the companies operate plays only a limited role, according to Galama and Scholtens. However, they find a clear influence of the stringency of climate policies: if this is stricter, there is a stronger relationship between emissions and financial performance. This is clearly a boost for countries with more stringent policies.

For more information:

Professor Bert Scholtens: l.j.r.scholtens rug.nl

The investigation has been carried out independently and publicly accessible