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

Recent empirical studies often support the positive relationship between corporate environmental performance (CEP) in terms of carbon dioxide (CO ₂ ) 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 CO ₂ and GHG emissions and financial factors. The models decompose CO ₂ (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 CO ₂ model, this study targets Japanese manufacturing firms in 16 sectors from fiscal years (FY) 2011 to 2015. Results show that the change in CO ₂ 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 CO ₂ emission is statistically significantly positive for equity and significantly negative for the TATR and leverage.