How Does Energy Transition Progress Affect the Reciprocal Relationships Between Environmental and Financial Performance in the EU Chemical, Rubber and Plastics Industries?

EU environmental regulations place a heavy burden on chemical-sector companies, complicating efforts to balance environmental responsibility and profitability. Understanding how financial and environmental performance evolve is essential for identifying the best policy combinations and for developing industrial strategies that incorporate the principles of sustainable development. This paper examines the bidirectional links between financial performance (FP) and environmental performance (EP) in the EU chemical (C20) and rubber and plastics (C22) industries, and assesses how a country’s energy transition progress affects this relationship. Unlike most prior studies, we use dynamic panel models to capture the temporal cross-lagged dependencies between EP and FP, highlighting the importance of dual dynamics in the EP–FP relationship over time. We estimate linear and nonlinear (U-shaped and inverted U-shaped) relationships at the industry level. Results show reciprocal linear links between EP and FP in both industries, supporting the virtuous-circle perspective: each may reinforce the other. However, the proposed nonlinear relationships are not supported. Moreover, greater readiness for energy transformation at the country level, as measured by the ETI, is associated with better environmental performance in the chemical industry, reflected in lower energy consumption and greenhouse gas emission intensity. At the same time, it is negatively associated with financial results. These findings underscore the need for proactive, sector-specific policies that help industries advance the energy transition and climate neutrality without undermining financial performance.