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

Yagi, Michiyuki and Managi, Shunsuke (2018): Decomposition analysis of corporate carbon dioxide and greenhouse gas emissions in Japan: Integrating corporate environmental and financial performances. Forthcoming in: Business Strategy and the Environment

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 (LMDI). As an application example of the carbon dioxide 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, and it is not significantly correlated to the carbon intensity, the energy intensity, and the cost-to-sales ratio.

• Item Type: MPRA Paper
• Language: English
• Keywords: Carbon dioxide and greenhouse gas emissions; Japanese manufacturing sectors; Kaya identity; index decomposition analysis; log-mean Divisia Index
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M11 - Production Management; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M20 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

References

Aguinis, H., Glavas, A., 2012. What We Know and Don’t Know About Corporate Social Responsibility. Journal of Management 38, 932–968. doi:10.1177/0149206311436079

Ang, B.W., 2004. Decomposition analysis for policymaking in energy: Energy Policy 32, 1131–1139. doi:10.1016/S0301-4215(03)00076-4

Ang, B.W., 2015. LMDI decomposition approach: A guide for implementation. Energy Policy 86, 233–238. doi:10.1016/j.enpol.2015.07.007

Ang, B.W., Zhang, F.Q., 2000. A survey of index decomposition analysis in energy and environmental studies. Energy 25, 1149–1176. doi:10.1016/S0360-5442(00)00039-6

Asian Productivity Organization (APO), 2014. Manual on Material Flow Cost Accounting: ISO 14051, Asian Productivity Organization, Japan. <http://www.apo-tokyo.org/publications/wp-content/uploads/sites/5/Manual_on_Material_Flow_Cost_Accounting_ISO14051-2014.pdf> (accessed Apr. 2018).

Bierer, A., Götze, U., Meynerts, L., Sygulla, R., 2015. Integrating life cycle costing and life cycle assessment using extended material flow cost accounting. Journal of Cleaner Production 108, 1289–1301. doi:10.1016/j.jclepro.2014.08.036

Busch, T., Hoffmann, V.H., 2011. How Hot Is Your Bottom Line? Linking Carbon and Financial Performance. Business & Society 50, 233–265. doi:10.1177/0007650311398780

Busch, T., Lewandowski, S., 2017. Corporate Carbon and Financial Performance: A Meta-analysis. Journal of Industrial Ecology 0, 1–15. doi:10.1111/jiec.12591

Cansino, J.M., Sánchez-Braza, A., Rodríguez-Arévalo, M.L., 2015. Driving forces of Spain’s CO2 emissions: A LMDI decomposition approach. Renewable and Sustainable Energy Reviews 48, 749–759. doi:10.1016/j.rser.2015.04.011

Capece, G., Di Pillo, F., Gastaldi, M., Levialdi, N., Miliacca, M., 2017. Examining the effect of managing GHG emissions on business performance. Business Strategy and the Environment 26, 1041–1060. doi:10.1002/bse.1956

Carroll, A.B., Shabana, K.M., 2010. The business case for corporate social responsibility: A review of concepts, research and practice. International Journal of Management Reviews 12, 85–105. doi:10.1111/j.1468-2370.2009.00275.x

Chapman, A., Fujii, H., Managi, S., 2018. Key Drivers for Cooperation toward Sustainable Development and the Management of CO2 Emissions: Comparative Analysis of Six Northeast Asian Countries. Sustainability 10, 244. doi:10.3390/su10010244

Chong, C., Ma, L., Li, Z., Ni, W., Song, S., 2015. Logarithmic mean Divisia index (LMDI) decomposition of coal consumption in China based on the energy allocation diagram of coal flows. Energy 85, 366–378. doi:10.1016/j.energy.2015.03.100

Christ, K.L., Burritt, R.L., 2015. Material flow cost accounting: a review and agenda for future research. Journal of Cleaner Production 108, 1378–1389. doi:10.1016/j.jclepro.2014.09.005

Delmas, M.A., Nairn-Birch, N., Lim, J., 2015. Dynamics of Environmental and Financial Performance. Organization & Environment 28, 374–393. doi:10.1177/1086026615620238

Fire and Disaster Management Agency of the Ministry of Internal Affairs and Communications, 2018, Report on The Great East Japan Earthquake in H23 (2011) (157th) [Japanese]. <http://www.fdma.go.jp/bn/higaihou/pdf/jishin/157.pdf> (accessed Apr. 2018).

Fujii, H., 2016. Decomposition analysis of green chemical technology inventions from 1971 to 2010 in Japan. Journal of Cleaner Production 112, 4835–4843. doi:10.1016/j.jclepro.2015.07.123

Fujii, H., Iwata, K., Kaneko, S., Managi, S., 2013. Corporate Environmental and Economic Performance of Japanese Manufacturing Firms: Empirical Study for Sustainable Development. Business Strategy and the Environment 22, 187–201. doi:10.1002/bse.1747

Fujii, H., Managi, S., 2016. Research and development strategy for environmental technology in Japan: A comparative study of the private and public sectors. Technological Forecasting and Social Change 112, 293–302. doi:10.1016/j.techfore.2016.02.012

Fujii, H., Yoshida, K., Sugimura, K., 2016. Research and Development Strategy in Biological Technologies: A Patent Data Analysis of Japanese Manufacturing Firms. Sustainability 8, 351. doi:10.3390/su8040351

Fujii, H., Okamoto, S., Kagawa, S., Managi, S., 2017. Decomposition of toxicity emission changes on the demand and supply sides: empirical study of the US industrial sector. Environmental Research Letters 12, 124008. doi:10.1088/1748-9326/aa9c66

Guenther, E., Jasch, C., Schmidt, M., Wagner, B., Ilg, P., 2015. Material Flow Cost Accounting – looking back and ahead. Journal of Cleaner Production 108, 1249–1254. doi:10.1016/j.jclepro.2015.10.018

Griffin, J.J., Mahon, J.F., 1997. The Corporate Social Performance and Corporate Financial Performance Debate. Business & Society 36, 5–31. doi:10.1177/000765039703600102

Hatakeda, T., Kokubu, K., Kajiwara, T., Nishitani, K., 2012. Factors Influencing Corporate Environmental Protection Activities for Greenhouse Gas Emission Reductions: The Relationship Between Environmental and Financial Performance. Environmental and Resource Economics 53, 455–481. doi:10.1007/s10640-012-9571-5

Hayashi, T., 2012. Japan’s Post-Disaster Economic Reconstruction: From Kobe to Tohoku. Asian Economic Journal 26, 189–210. doi:10.1111/j.1467-8381.2012.02082.x

Hayes, G.P., Myers, E.K., Dewey, J.W., Briggs, R.W., Earle, P.S., Benz, H.M., Smoczyk, G.M., Flamme, H.E., Barnhart, W.D., Gold, R.D., Furlong, K.P., 2017. Tectonic summaries of magnitude 7 and greater earthquakes from 2000 to 2015, U.S. Geological Survey Open-File Report 2016–1192. doi:10.3133/ofr20161192

ISO, 2011. ISO 14051:2011(en) Environmental management — Material flow cost accounting — General framework. <https://www.iso.org/obp/ui/#iso:std:iso:14051:ed-1:v1:en>

ISO, 2017. ISO 14052:2017(en) Environmental management — Material flow cost accounting — Guidance for practical implementation in a supply chain. <https://www.iso.org/obp/ui/#iso:std:iso:14052:ed-1:v1:en>

Kaya, Y., Yokobori, K., 1998. Environment, Energy, and Economy Strategies for Sustainability. Tokyo: United Nations University Press.

Kokubu, K., Kitada, H., 2015. Material flow cost accounting and existing management perspectives. Journal of Cleaner Production 108, 1279–1288. doi:10.1016/j.jclepro.2014.08.037

Kwon, D.S., Cho, J.H., Sohn, S.Y., 2017. Comparison of technology efficiency for CO2 emissions reduction among European countries based on DEA with decomposed factors. Journal of Cleaner Production 151, 109–120. doi:10.1016/j.jclepro.2017.03.065

Managi, S., Guan, D., 2017. Multiple disasters management: Lessons from the Fukushima triple events. Economic Analysis and Policy 53, 114–122. doi:10.1016/j.eap.2016.12.002

Margolis, J.D., Walsh, J.P., 2003. Misery Loves Companies: Rethinking Social Initiatives by Business. Administrative Science Quarterly 48, 268. doi:10.2307/3556659

Nishitani, K., Kaneko, S., Komatsu, S., Fujii, H., 2014. How does a firm’s management of greenhouse gas emissions influence its economic performance? Analyzing effects through demand and productivity in Japanese manufacturing firms. Journal of Productivity Analysis 42, 355–366. doi:10.1007/s11123-014-0388-9

Raupach, M.R., Marland, G., Ciais, P., Le Quere, C., Canadell, J.G., Klepper, G., Field, C.B., 2007. Global and regional drivers of accelerating CO2 emissions. Proceedings of the National Academy of Sciences 104, 10288–10293. doi:10.1073/pnas.0700609104

Rieckhof, R., Bergmann, A., Guenther, E., 2015. Interrelating material flow cost accounting with management control systems to introduce resource efficiency into strategy. Journal of Cleaner Production 108, 1262–1278. doi:10.1016/j.jclepro.2014.10.040

Roman, R.M., Hayibor, S., Agle, B.R., 1999. The Relationship between Social and Financial Performance. Business & Society 38, 109–125. doi:10.1177/000765039903800105

Schaltegger, S., Zvezdov, D., 2015. Expanding material flow cost accounting. Framework, review and potentials. Journal of Cleaner Production 108, 1333–1341. doi:10.1016/j.jclepro.2014.08.040

Su, B., Ang, B.W., 2012. Structural decomposition analysis applied to energy and emissions: Some methodological developments. Energy Economics 34, 177–188. doi:10.1016/j.eneco.2011.10.009

Wagner, B., 2015. A report on the origins of Material Flow Cost Accounting (MFCA) research activities. Journal of Cleaner Production 108, 1255–1261. doi:10.1016/j.jclepro.2015.10.020

Wang, L., Li, S., Gao, S., 2014a. Do Greenhouse Gas Emissions Affect Financial Performance? - an Empirical Examination of Australian Public Firms. Business Strategy and the Environment 23, 505–519. doi:10.1002/bse.1790

Wang, W., Liu, X., Zhang, M., Song, X., 2014b. Using a new generalized LMDI (logarithmic mean Divisia index) method to analyze China’s energy consumption. Energy 67, 617–622. doi:10.1016/j.energy.2013.12.064

World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), 2004. The Greenhouse Gas Protocol - A Corporate Accounting and Reporting Standard (Revised edition). < http://www.ghgprotocol.org/sites/default/files/ghgp/standards/ghg-protocol-revised.pdf> (accessed Mar. 2018).

World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), 2011. The Greenhouse Gas Protocol - Corporate Value Chain (Scope 3) Accounting and Reporting: Supplement to the GHG Protocol Corporate Accounting and Reporting Standard. <http://www.ghgprotocol.org/standards/scope-3-standard> (accessed Mar. 2018).