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Decomposition analysis of corporate carbon dioxide and greenhouse gas emissions in Japan: Integrating corporate environmental and financial performances

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  • Michiyuki Yagi
  • Shunsuke Managi

Abstract

Recent empirical studies often support the positive relationship between corporate environmental performance (CEP) in terms of carbon dioxide (CO2) and greenhouse gas (GHG) emissions and corporate financial performance (CFP). However, this depends on the measurements of CEP (the absolute and relative CEP) and CFP (accounting‐based and market‐based CFP). To understand the relationship structurally, based on the literature, this study proposes identity models that integrate CO2 and GHG emissions and financial factors. The models decompose CO2 (GHG) emissions into carbon intensity (GHG intensity), energy intensity, the cost‐to‐sales ratio, the total‐assets‐turnover ratio (TATR), leverage, and equity. The model of supply‐chain GHG emissions additionally adopts supply‐chain GHG intensity. As a decomposition method, this study uses the log‐mean Divisia index. As an application example of the CO2 model, this study targets Japanese manufacturing firms in 16 sectors from fiscal years (FY) 2011 to 2015. Results show that the change in CO2 emissions as of 2015 (−802.1 kilotonnes [kt]) is decomposed into 2922.5 kt for carbon intensity, −26036.3 kt for energy intensity, −6350.5 kt for the cost‐to‐sales ratio, −8495.6 kt for the TATR, −7912.3 kt for leverage, and 45070.1 kt for equity. Average values of relative contribution ratios are 20.6% for carbon intensity, 19.1% for energy intensity, and the remaining approximately 60% for financial factors. Among the 16 sectors, as of 2015, the change in total CO2 emission is statistically significantly positive for equity and significantly negative for the TATR and leverage.

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  • Michiyuki Yagi & Shunsuke Managi, 2018. "Decomposition analysis of corporate carbon dioxide and greenhouse gas emissions in Japan: Integrating corporate environmental and financial performances," Business Strategy and the Environment, Wiley Blackwell, vol. 27(8), pages 1476-1492, December.
    • Handle: RePEc:bla:bstrat:v:27:y:2018:i:8:p:1476-1492
    DOI: 10.1002/bse.2206
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    2. Weihua Su & Yuying Wang & Dalia Streimikiene & Tomas Balezentis & Chonghui Zhang, 2020. "Carbon dioxide emission decomposition along the gradient of economic development: The case of energy sustainability in the G7 and Brazil, Russia, India, China and South Africa," Sustainable Development, John Wiley & Sons, Ltd., vol. 28(4), pages 657-669, July.
    3. Erli Dan & Jianfei Shen & Xinyuan Zheng & Peng Liu & Ludan Zhang & Feiyu Chen, 2023. "Asset Structure, Asset Utilization Efficiency, and Carbon Emission Performance: Evidence from Panel Data of China’s Low-Carbon Industry," Sustainability, MDPI, vol. 15(7), pages 1-20, April.
    4. Shoaib Aslam & Mohamed H. Elmagrhi & Ramiz Ur Rehman & Collins G. Ntim, 2021. "Environmental management practices and financial performance using data envelopment analysis in Japan: The mediating role of environmental performance," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1655-1673, May.
    5. Tian Zhao & Zhixin Liu, 2022. "Drivers of CO 2 Emissions: A Debt Perspective," IJERPH, MDPI, vol. 19(3), pages 1-18, February.
    6. Cunha, Felipe Arias Fogliano de Souza & Meira, Erick & Orsato, Renato J. & Klotzle, Marcelo Cabus & Lucena, André F.P., 2021. "Do low-carbon investments in emerging economies pay off? Evidence from the Brazilian stock market," International Review of Financial Analysis, Elsevier, vol. 74(C).
    7. Yagi, Michiyuki & Kokubu, Katsuhiko, 2019. "Waste Decomposition Analysis in Japanese manufacturing sectors for Material Flow Cost Accounting," MPRA Paper 92999, University Library of Munich, Germany.
    8. Qingxia (Jenny) Wang, 2023. "Financial effects of carbon risk and carbon disclosure: A review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4175-4219, December.
    9. Syeda Humayra Abedin & Silima Subha & Mumtaheena Anwar & Md. Nurul Kabir & Yasean A. Tahat & Mohammed Hossain, 2023. "Environmental Performance and Corporate Governance: Evidence from Japan," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    10. Jun Xie & Wataru Nozawa & Shunsuke Managi, 2020. "The role of women on boards in corporate environmental strategy and financial performance: A global outlook," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2044-2059, September.
    11. Mahabubur Rahman & Saqib Aziz & Mathew Hughes, 2020. "The product‐market performance benefits of environmental policy: Why customer awareness and firm innovativeness matter," Business Strategy and the Environment, Wiley Blackwell, vol. 29(5), pages 2001-2018, July.
    12. Oliver I. Inah & Fidelis I. Abam & Bethrand N. Nwankwojike, 2022. "Exploring the CO2 emissions drivers in the Nigerian manufacturing sector through decomposition analysis and the potential of carbon tax (CAT) policy on CO2 mitigation," Future Business Journal, Springer, vol. 8(1), pages 1-22, December.
    13. Yoshida, Kenichi & Iino, Yoshiaki & Managi, Shunsuke, 2022. "Do Japanese keiretsu promote better CSR activities?," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 452-475.
    14. Seonghoon Kim & Ann Terlaak & Matthew Potoski, 2021. "Corporate sustainability and financial performance: Collective reputation as moderator of the relationship between environmental performance and firm market value," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1689-1701, May.
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    JEL classification:

    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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