Environmental Costs, Carbon Emission Disclosure and Corporate Financial Performance: Evidence from the South African Energy Sector

Abstract

The escalation of climate change and heightened environmental regulations have amplified the necessity for companies, especially those in carbon-heavy sectors, to enhance their environmental management and climate-related reporting. This study investigates the correlation between Carbon Emission Disclosure (CED), Environmental Costs (ENV-COST), and financial performance in energy-sector companies listed on the Johannesburg Stock Exchange (JSE). The study uses a quantitative methodology and uses secondary data sourced from business annual reports, integrated reports, and sustainability reports. The empirical investigation relies on 219 observations of energy-sector companies listed on the JSE. Financial performance is evaluated through Return on Assets (ROA), Carbon Emission Disclosure is gauged using a disclosure index, and Environmental Costs are quantified by reported environmental expenditures. Descriptive statistics and multiple regression analysis are utilized to investigate the correlations among the variables. The results indicate that Carbon Emission Disclosure is inversely and statistically significantly correlated with financial performance (β = −0.729; p < 0.002). Environmental costs exhibit a positive and statistically significant correlation with financial performance (β = 0.163; p < 0.002). The comprehensive regression model has statistical significance (F = 28.82; p < 0.001) and accounts for almost 37% of the variance in financial performance (R² = 0.37; adjusted R² = 0.36). The results indicate that disclosing carbon emissions could create immediate financial strains or expose environmental hazards, while environmental investments may yield operational, risk-management, and strategic advantages that enhance financial outcomes. The study enhances the field of environmental accounting by illustrating that environmental transparency and investment can yield disparate financial outcomes in a carbon-heavy developing market setting.