Accounting for the environment, earnings quality and financial performance

This thesis investigates the relationship between corporate carbon emissions and financial reporting quality, emphasizing the economic implications of sustainability practices. The research is structured into three chapters, each exploring key themes related to Corporate Social Responsibility (CSR), Environmental, Social, and Governance (ESG) metrics, emissions reduction, and earnings quality. Utilizing a dataset of European listed firms from 2013 to 2019, the study analyses the impact of carbon emissions (both raw and scaled) on earnings management and corporate profitability. Findings reveal that lower carbon emissions correlate with higher income-decreasing earnings management, potentially to align reported performance with industry benchmarks. However, these practices obscure profitability indicators, despite improved cost efficiency. By distinguishing between earnings manipulation practices and employing robustness checks, including Principal Component Analysis (PCA), the thesis contributes to clarifying CSR-related complexities. The results highlight that while carbon emissions reductions associate with operational efficiency, they lead to unintended consequences affecting transparency in financial reporting. These insights provide guidance for policymakers, investors, and firms striving to balance sustainability goals with economic performance.