Analyzing the Relationship Between Carbon Emissions Reduction Strategies and Financial Performance in Multinationals

Abstract

This study investigates the relationship between carbon emissions reduction strategies and short-term financial performance in multinational corporations (MNCs) operating in North America. By utilizing panel data from 103 firms over the period 2013 to 2023, the research employs dynamic panel Generalized Method of Moments (GMM) and Ordinary Least Squares (OLS) regression techniques. The analysis reveals a statistically significant negative impact of emissions reduction efforts on short-term firm value, measured by Tobin’s Q (β = -1.411, p < 0.01). These results suggest that while carbon reduction initiatives are essential for long-term environmental sustainability, they impose immediate financial costs and operational restructuring that can reduce firm market valuation in the short term. Additionally, firm-level characteristics significantly mediate this impact. Specifically, firm size (β = 2.324, p < 0.05), capital intensity (β = –0.355, p < 0.05), and leverage (β = 1.745, p < 0.05) demonstrate a nuanced relationship between firm structure and the financial implications of environmental strategies. Model diagnostics confirm robustness: all Variance Inflation Factor (VIF) values are below 5, indicating no multicollinearity among explanatory variables. Furthermore, the Arellano-Bond test confirms no first-order serial correlation in the differenced residuals (AR (2) m-statistic = –1.253, p = 0.2102 > 0.05), validating the GMM model specification. The findings underscore the importance of complementary policy measures—such as financial incentives, regulatory clarity, and transitional support frameworks—to mitigate short-term financial disincentives for firms adopting emissions reduction strategies. These insights offer valuable guidance to policymakers, institutional investors, and corporate managers navigating the balance between environmental responsibility and financial accountability.

Keywords: Carbon Emissions, Emissions Reduction Strategies, Financial Performance, Multinational Corporations, Sustainability, and Corporate Environmental Responsibility

DOI: 10.7176/JESD/16-4-09

Publication date: June 30th 2025