Carbon and financial performance nexus of the heavily polluting companies in the context of resource management during COVID-19 period

The depletion of fossil fuels and the new EU climate policy goals to achieve a zero-emission economy after 2050 encourage highly polluting companies to increase the efficiency of energy conversion from non-renewable energy sources, develop renewable energy sources and implement resource management systems in production. Studying the relationship between environmental performance and financial performance of firms is particularly important in times of the Covid-19 pandemic, as companies' decisions to limit or continue green investments and low-emission transformation may impact access to external financing sources. The aim of this study is to identify the shape of the relationship between the carbon and financial results of heavily polluting enterprises in the context of resource management and to assess the impact of the Covid-19 pandemic on the considered relationship. For a panel sample of Polish enterprises representing highly polluting industries with manufacturing plants covered by the EU ETS in 2009–2021, a third-degree polynomial describing this relationship was estimated. A U-shaped relationship was identified between carbon emission intensity and return on sales and return on assets, which can be explained by the ‘too-little-of-a-good-thing’ effect. Increase in share of renewable energy in the production structure significantly reduces firms’ profitability, which can be explained by the relatively high costs associated with the development of renewable energy and the changing legal regulations regarding this type of investment. It has been shown that companies with high carbon emission intensity achieved lower sales profits and return on assets compared to companies with lower carbon intensity during the Covid-19 pandemic. The lower scale of allocation of free emission allowances compared to previous years, combined with the increase in emission allowance prices under the influence of shocks generated by the pandemic, had a negative impact on the profitability of heavily polluting companies. The modelling results provide important information to managers who, based on them, can make more informed decisions regarding the use of natural resources in production and the involvement of enterprises in investments aimed at the use of cleaner production technologies and the development of renewable energy.