Effect of Carbon Footprint on Profitability in Metals & Mining industry of South Africa

Abstract

This study investigates the impact of the introduction of a carbon tax on the South African metals and mining industry using integrated financial reports. The introduction of the carbon tax in South Africa promises to be one of the greatest systemic policy changes in the country’s history, putting together business costs/risks and revenues/opportunities. The carbon tax, by its design, is disincentive and has financial consequences; therefore, it is important to analyse corporate environmental management practices in light of the relationships between carbon emissions and firm financial performance. This study hypothesises that the introduction of carbon-tax will change investors’ expectations of the possibility of potential cash flows and shareholder returns to the companies concerned. Applying a positivist approach, the study analyses a financial and emissions dataset of 12 metals and mining companies for a five-year period, from 2015 to 2019. Econometric techniques are applied to determine the nature of relationships between companies’ emissions and profitability ratios. The correlation and regression analysis showed that carbon tax has a negative impact on net profit margin (NPM), return on assets (ROA) and return on equity (ROE). The study developed a relationship between financial performance (NPM, ROA, RE) and carbon emissions. It is recommended that companies should invest in environmentally friendly technologies not only to positively impact their bottom line, but also to alleviate environmental degradation. Companies must investigate the advantages of investing in cleaner technologies as this is one solution for reducing the effects of the carbon tax on profitability.