Do Environmental Costs Impact Financial Sustainability? An Emerging Market’s Perspective.

Thomas NYAHUNA; Mishelle DOORASAMY

doi:10.38142/ijesss.v4i3.379

Authors

Thomas NYAHUNA University of Kwazulu-Natal, South Africa
Mishelle DOORASAMY University of Kwazulu-Natal, South Africa

DOI:

https://doi.org/10.38142/ijesss.v4i3.379

Keywords:

environmental costs, financial sustainability, return on equity, pollution prevention costs, Johannesburg Stock Exchange

Abstract

The importance of properly managing environmental costs cannot be underestimated. This paper investigated the relationship between environmental costs and financial performance of 45 cement and mining listed on the Johannesburg Stock Exchange from 2014 to 2021. Financial performance is measured by return on equity whilst environmental cost is proxied by carbon management costs, recycling costs and pollution prevention costs. Control variables such as growth, leverage, size and debt ratio are used in this study. The study applied a quantitative research approach using an ex-post facto research design. The researchers adopted a panel regression analysis. The result of the study indicates a negative and significant association between environmental costs and return on equity. It was concluded that environmental costs reduce profitability in form of return of equity of the sampled companies. This study has practical implications of motivating corporate managers to proactively manage environmental costs in order to improve corporate financial performance. Additionally, it helps to practically shape environmental policies that intend to augment environmental performance.

Downloads

Download data is not yet available.

References

Acti I., M. S., Lyndon M. E. & Bingilar, P. F. (2013). The impact of environmental cost on corporate performance: A study of oil companies in Niger Delta States of Nigeria. Journal of Business & Management, 2(2), 1-10.

Adediran, S. A., & Alade, S. O. (2013). The impact of environmental accounting on corporate performances. European Journal of Business and Management, 5 (23). https://doi.org/10.12735/jbm.v2i2p01

Al-Mawali, H. (2021). Environmental cost accounting and financial performance: The mediating role of environmental performance. Accounting, 7(2021), 535–544. https://doi.org/10.5267/j.ac.2021.1.005

Ariffin, A. R. M. (2016). ‘Environmental management accounting (EMA): Is there a need?’ International Journal of Liberal Arts and Social Science, 4(6), 96–103.

Bracci, E., & Maran, L. (2013. ‘Environmental management and regulation: pitfalls of environmental accounting?’ Management of Environmental Quality: An International Journal, 24(4), 538–554. https://doi.org/10.1108/MEQ-04-2012-0027

Chiang, B., Pelham, A., & Katsuo, Y. (2015). Environmental costs, social responsibility, and corporate financial performance. American Journal of Business Research, 8(1), 39-56.

Christ, K. L., Burritt, R., & Varsei, M. (2016). Towards environmental management accounting for trade-offs. Sustainability Accounting, Management and Policy Journal, 7(3), 428–448. https://doi.org/10.1108/SAMPJ-12-2015-0112

Cortez, M. A., & Cudia, C. P. (2010). The impact of environmental innovation on financial performance: The case of Japanese Automotive and Electronics Companies. Journal of International Business Research, 9(Special Issue 1), 33-46.

Cortez, M. A., & Penacerrada, N. T. (2010). Is it beneficial to incur the environmental cost? A case study of Toyota Motors Corporation Japan. Journal of International Business Research, 9(Special Issue 2), 113

Ferdous, M. I., Adams, C. A. & Boyce, G. (2019). Institutional drivers of environmental management accounting adoption in public sector water organizations. Accounting, Auditing and Accountability Journal, 32(4), 984-1012. https://doi.org/10.1108/AAAJ-09-2017-3145

Gunarathne, N. & Lee, K. H. (2015). Environmental management accounting (EMA) for environmental management and organizational change: An eco-control approach. Journal of Accounting and Organizational Change, 11(3), 362-383. https://doi.org/10.1108/JAOC-10-2013-0078

Hair, E.L., Black, R., Babin, S., Anderson, A & Tatham, B. (2014). Multivariate Data Analysis, (7th Edition). Pearson Prentice Hall

IFAC (International Federation of Accountants). 2005. International Guidance Document: Environmental Management Accounting. New York, USA: International Federation of Accountants.

Ikpor, I. M., Enuma, I & Okezie, B. N. (2019). Environmental Accounting and Sustainable Financial Performance: Evidence from the Nigerian Petroleum Industry. International Journal of Applied Environmental Sciences, 14(1), 85-93.

Jasch, C. 2000. What are environmental costs? Social and Environmental Accountability Journal, 20:1, 1–6. https://doi.org/10.1080/0969160X.2000.9651624

Johnstone, L. (2018). Theorising and modeling social control in environmental management accounting research. Social and Environmental Accountability Journal, 1(1), 1–19. https://doi.org/10.1080/0969160X.2017.1422778

Kelsall, C. A. (2020). Ecological management accounting-taking into account sustainability, does accounting have far to travel? Sustainability, 12, 1-28. https://doi.org/10.3390/su12218854

Koye, E. I. & Adeniyi, S. I. (2017). Effects of environmental protection cost on product price in Nigeria: study of brewery industry. Arabian Journal of Business and Management Review (Nigerian Chapter), 4(2), 52-58. https://doi.org/10.12816/0037556

Le, T. T., Nguyen, T. M. A. & Phan, T. T. H. (2019). Environmental management accounting and performance e?ciency in the Vietnamese construction material industry-A managerial implication for sustainable development. Sustainability, 11(5), 1-32. https://doi.org/10.3390/su11195152

Lee, N. G. K. (2015). Environmental management accounting (EMA) for environmental management and organizational change. Journal of Accounting and Organizational Change, 11(3), 362–383. https://doi.org/10.1108/JAOC-10-2013-0078

Nuzula, N., F. (2019). Does environmental cost affect Japanese firms’ performance? International Journal of Professional Business Review, 4 (1), 14–21. https://doi.org/10.26668/businessreview/2019.v4i1.105

Nwaimo, S. C. (2020). Effect of environmental cost on performances of quoted firms in Sub-Saharan Africa, 2007-2016. European Journal of Accounting, Auditing and Finance Research, 8(7), 97–120. https://doi.org/10.37745/ejaafr/vol8.no7.pp97-120.2020

Nyirenda, G., Ngwakwe, C. C. & Ambe, C. M. (2013). Environmental management practices and firm performance in a South African mining firm. Managing Global Transition, 11(3), 243-260.

Oberholzer, M., & Prinsloo, T. F. (2011). Estimating the efficiency of sustainable development by South African mining companies. Journal of Human Ecology, 36(3), 179–184. https://doi.org/10.1080/09709274.2011.11906433

Onyinyichi, A. B., Kingsley, O. O., & Francis, A. (2017). The effect of environmental cost on financial performance of Nigerian Brewery. European Journal of Business and Management, 9(17), 59-65.

Ringle, C. M., Wende, S. & Becker, J. (2015). SmartPLS 3. Bönningstedt: SmartPLS. Retrieved from http://www.smartpls.com

Sales, I. (2019). The influence of environmental management accounting on firm performance with green innovation as an intervening variable in empirical studies in manufacturing companies. RJOAS, 1(85), 420-426. https://doi.org/10.18551/rjoas.2019-01.51

WWF (World Wide Fund for Nature). (2018). Greenhouse gas emissions reduction options for the South African cement sector. Emerging climate-smart business opportunities.www.org.zational state-owned enterprises. Production Economics, 1-10.