Between Sustainability and Profitability: The Impact of Emissions Score and Green Innovation on Firm Value and Market Risk
Afnani Rosyida (a*), I Wayan Nuka Lantara (b)

a) Master of Science at the Faculty of Economics and Business, Gadjah Mada University.
*afnanirosyida[at]mail.ugm.ac.id
b) Departement of Science in Management, Faculty of Economics and Business Gadjah Mada University

Abstract

Environmental challenges such as climate change, resource depletion, and pollution have prompted companies to integrate sustainability into their core business strategies. Today, firms are increasingly expected to demonstrate environmental responsibility alongside financial performance. As a result, metrics such as the Emission Score and Environmental Innovation Score have gained prominence as indicators that reflect a company^s efforts in reducing environmental impact and promoting green innovation.

This study investigates the influence of Emission Score and Environmental Innovation Score on firm value and market risk, with profitability measured by Return on Assets (ROA) serving as a moderating variable. The research employs a quantitative approach using panel data sourced from Thomson Reuters for the period 2018 to 2023. A total of 662 global manufacturing companies are included in the sample, selected through purposive sampling to ensure relevance and data completeness. Multivariate regression analysis is applied using STATA 17 to examine both the direct and moderating effects.

The findings suggest that environmental performance, as captured by emission control and green innovation initiatives, can contribute to enhancing firm value when supported by strong financial fundamentals. ROA is found to play a crucial role in strengthening the positive relationship between sustainability efforts and firm valuation. However, in terms of market risk, the results indicate that environmental aspects have yet to be fully priced in by investors and market participants. This implies a potential gap in market perception and valuation regarding environmental responsibility.

Overall, this study underscores the importance of integrating environmental considerations into corporate strategy and financial evaluation. It also highlights the need for greater awareness and alignment between sustainability practices and market risk assessments in the evolving landscape of corporate accountability.

Keywords: Emission Score, Environmental Innovation, Profitability, Firm Value, Market Risk

Topic: Financial management