The Impact of Profitability on Scope 1, 2 and 3 GHG Emissions in Europe

Abstract

This thesis examines the effect of corporate profitability on the levels of greenhouse gas (GHG) emissions, specifically analyzing Scope 1, 2, and 3 emissions for European companies listed on the STOXX Europe 600 index from 2017 to 2023. Given increasing regulatory pressures, inconclusive evidence on whether profitability drives sustainability, and potential bidirectional causality, researching this relationship is highly relevant. Using a systematic literature review (SLR) and fixed-effects regressions, this thesis investigates this relationship. Results show profitability, measured by return on assets (ROA), negatively correlates with Scope 3 emissions, suggesting higher profits may promote sustainability. However, no significant correlation exists for Scope 1 and 2 emissions, except for a positive link with Scope 2 emissions in low-emission sectors. High-emission industries show stronger model explanatory power, indicating a closer profitability-emissions link. Findings are robust against outliers but vary with changing profitability metrics. This research contributes to the profitability-sustainability debate, offering insights for policymakers, scholars, and managers, while emphasizing the need to consider industry and Scope-specific dynamics to combat climate change.

Keywords: GHG emissions; profitability; sustainability reporting