Low Carbon Economy, 2013, 4, 129-136
Published Online December 2013 (http://www.scirp.org/journal/lce)
http://dx.doi.org/10.4236/lce.2013.44014
Open Access LCE
129
Correlations between Corporate Climate Change
Management and Financial Performance: A Case Study of
Japanese Automobile Manufacturers
Miyako Enokibori1, Ryuji Matsuhashi2, Yoshikuni Yoshida1
1Department of Environment Systems, Graduate School of Frontier Sciences, The University of Tokyo, Kashiwa, Japan; 2Department
of Electrical Engineering and Information Systems, Graduate School of Engineering, The University of Tokyo, Tokyo, Japan.
Email: enokibori@globalenv.k.u-tokyo.ac.jp
Received September 13th, 2013; revised October 12th, 2013; accepted October 20th, 2013
Copyright © 2013 Miyako Enokibori et al. This is an open access article distributed under the Creative Commons Attribution Li-
cense, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
ABSTRACT
Using data from a survey, we examined actions taken by large corporations based in three countries to combat climate
change and related these actions to the corporations’ financial performance. We analyzed the correlation between finan-
cial performance and climate change management performance to determine the extent that climate change manage-
ment activities are a net cost or a net benefit to companies. We found that corporate climate change management per-
formance is generally positively correlated with financial performance, but that the relationship differs among countries
due to national-level external factors. A case study of Japanese automobile manufacturing companies showed that sales
of a company’s fuel-efficient cars, reflecting consumers’ awareness of climate change, are associated with higher valua-
tion by financial markets.
Keywords: Corporate Climate Change Management; Financial Analysis; Correlation Analysis; Automobile
Manufacturer; Vehicle Fuel Efficiency
1. Introduction
Climate change has been recognized as a serious issue
for a considerable time, and is addressed in various ways
in different industrial sectors. Companies may reduce
greenhouse gas emissions resulting from their operations
and products, either voluntarily or by mandate. Initially it
was generally believed that emissions reduction would be
a high net cost, and have little “bottom-line” benefit to
companies. In recent years, however, consumers have
increased purchases of energy-efficient goods and ser-
vices that allow them to reduce their carbon footprint.
The increasing demand for this kind of product can now
be shown to represent the potential for higher profits. In
addition, since the fall of Lehman Brothers in 2008, in-
stitutional investors now evaluate such non-financial cor-
porate information as environmental, social, and gov-
ernance (ESG) factors in addition to traditional financial
information. Companies that actively address climate
change may therefore be favorably regarded by some
investors.
The relationship between environmental activities and
profits may not be apparent to companies in the absence
of relevant data and analysis. Previous studies showed
positive relationships between corporate motivation for
environmental action and corporate financial indicators
or market valuation. Takeda and Tomozawa investigated
stock price reactions to the environmental management
rankings issued by Nihon Keizai Shimbun (a Japanese
financial newspaper). Using a standard event study me-
thodology they found that market reaction changed be-
tween 2001 and 2002, when the Japanese government
demonstrated commitment to environmental policies by
establishing a Ministry of the Environment, enacting en-
vironmental legislation, and signing the Kyoto Protocol
[1]. Kuribayashi and Kameyama concluded that envi-
ronmental management activities influence the financial
management and valuation of equipment manufacturing
companies [2]. Whereas these studies considered the
general environmental activities of corporations, we have
focused on corporate climate change management in this
research. We constructed an index that summarizes cor-
porate climate change management performance by us-
Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
130
ing survey data and estimated the relationships between
this index and financial performance. We present a case
study of Japanese auto manufacturers in order to estimate
the influence of carbon-conscious consumers on corpo-
rate financial performance.
2. Evaluation of Corporate Climate Change
Management Performance and Financial
Performance
2.1. Corporate Climate Change Management
Performance Index
We selected seven dimensions of corporate climate
change management performance (Tables 1-7) based on
the output of a working group set up by the Japanese
Ministry of Economy, Trade and Industry to develop
evaluation methods for corporate environmental manage-
ment. We used raw data on corporate climate change ma-
nagement from a questionnaire survey of large corpora-
tions conducted by CDP since 2003 on behalf of institu-
tional investors (CDP signatories). The 519 companies
targeted included 108 corporations based in Japan, 149
based in the United States, and 99 based in the United
Kingdom.
Table 1. Corporate climate change performance index: go-
vernance and strategy.
Topic Detail
Weighting
factor
Climate change strategy 0.37
Responsibility for climate change
within the company 0.37
Governance
and strategy
Mechanism to review the company’s
progress and status regarding climate change0.27
Table 2. Corporate climate change performance index:
risks.
Topic Detail
Weighting
factor
Process to identify climate change risks 0.07
Risk description 0.09
Impact of the risk 0.10 Regulatory risks
Risk management 0.11
Risk description 0.10
Impact of the risk 0.11 Physical risks
Risk management 0.11
Risk description 0.10
Impact of the risk 0.11
Risks
Other risks
Risk management 0.11
Table 3. Corporate climate change performance index: op-
portunities.
Topic Detail
Weighting
factor
Process to identify climate
change opportunities 0.07
Opportunity description 0.09
Impact of the opportunity 0.11
Regulatory
opportunities
Opportunity management 0.11
Opportunity description 0.09
Impact of the opportunity 0.11
Physical
opportunities
Opportunity management 0.10
Opportunity description 0.10
Impact of the opportunity 0.11
Opportunities
Other
opportunities
Opportunity management 0.11
Table 4. Corporate climate change performance index:
Emissions accounting.
Topic Detail
Weighting
factor
Domestic 0.11
Scope 1 emissions
Abroad 0.10
Domestic 0.11
Scope 2 emissions
Abroad 0.11
Scope 3 emissions 0.10
Financial intensity 0.10
Emission intensity
Physical intensity 0.10
Scope 1 emissions 0.09
Scope 2 emissions 0.09
Emissions
accounting
External verification
Scope 3 emissions 0.08
Table 5. Corporate climate change performance index:
emissions reduction target.
Topic Detail
Weighting
factor
Scope 1 emissions 0.36
Scope 2 emissions 0.36
Emissions
reduction target
Emissions
reduction target
Scope 3 emissions 0.27
Each selected topic comprises several factors that we
weighted (using expert consensus) to more highly value a
company that strongly encourages climate change miti-
gation and adaptation. To estimate the total weighting of
each topic we calculated weighting factors by principal
component analysis to account for the variability be-
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Correlations between Corporate Climate Change Management and Financial Performance:
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131
Table 6. Climate change performance index: emissions re-
duction activity.
Topic Detail
Weighting
factor
Emissions reduction activities 0.37
Emissions avoided through use
of goods and services 0.36
Emissions
reduction activity
Emissions offsetting 0.27
Table 7. Corporate climate change performance index:
communication.
Topic Detail
Weighting
factor
Disclosure in annual report 0.34
Disclosure in corporate social
responsibility or environmental report 0.36
Communication
Engagement with policy makers 0.30
tween these factors.
The selected topics were 1) governance and strategy, 2)
risks, 3) opportunities, 4) emissions accounting, 5) emis-
sions reduction target, 6) emissions reduction activity,
and 7) communication. Governance and strategy 1) in-
cludes the factors of climate change strategy, respons-
bility for climate change within the company, and me-
chanisms for reviewing status and progress on climate
change (Table 1). A corporate business strategy that was
directly related to climate change mitigation or adapta-
tion received a high numerical rating and additional
points if the strategy was likely to achieve significant
emissions reductions. A company received points for the
responsibility factor if it managed climate change issues
on a company-wide level, by a board committee, a spe-
cific designated department, or by the CEO or other sen-
ior executive. Similarly, an established review mecha-
nism for climate change management, progress, and
status received points. After rating the three items (strat-
egy, responsibility, and mechanism) for all samples, we
performed principal component analysis. In the analysis
we used a correlation coefficient matrix, calculated ei-
genvalues corresponding to the contribution ratio and
eigenvectors for each eigenvalue, and derived principal
component scores for each eigenvector. In the case of
these three items, the first principal component score was
considered to represent the relative strength of the cor-
poration’s climate change strategy and governance of its
implementation. The eigenvector for the first principal
component was used as the weighting factor for govern-
ance and strategy.
Tables 2 and 3 show the various factors considered in
the identification of climate change risks and opportuni-
ties, with subcategories of regulatory, physical, and other.
We used survey data on corporate processes for assessing
risks and opportunities, the frequency and the respons-
bility for them, and related factors to evaluate how well a
company recognizes risks and opportunities, estimates
their impact, and tries to manage them. Even if a com-
pany faces serious risks, they are rated highly if they
recognize the risks and the impact and introduce appro-
priate risk management. The same analytical method as
described above was used to obtain the first principal
component, which represents the relative degree that a
company tries to assess and manage risks and opportuni-
ties.
An emissions accounting score (Table 4) was derived
from available survey data on monitoring Scope 1, 2, and
3 emissions and emissions intensities, and whether each
is verified or assured by a third party. The actual values
of emissions amounts and intensities were not considered
relevant; instead, we considered simply whether they
were assessed by timely and reliable methods. Separate
ratings were given for domestic and foreign corporate
operations.
Emissions reduction target (Table 5) was evaluated by
whether a company sets a target for Scope 1, 2 and 3
emissions.
Emissions reduction activity (Table 6) scores whether
a company introduces emission reduction activities for
Scope 1, 2 and 3 emissions, whether customers can re-
duce their own emissions by using the company’s goods
and services, and whether a company originates or pur-
chases offsetting carbon credits.
The communication component of the index (Table 7)
represents corporate disclosure and engagement with
policymakers. Points were given if a company discloses
their climate change information such as reduction tar-
gets or number of emissions in their annual report or in
some other voluntary report, such as a corporate social
responsibility report. A company also was given points if
it engages with policy makers on climate change taxation,
regulation or carbon trading through direct discussion or
participation in national committees.
2.2. Corporate Financial Performance
We analyzed corporate profitability, growth potential,
and the enterprise value (EV) of companies with refer-
ence to their financial statements and share prices. As
indicators of profitability we used the return on turnover,
return on equity, return on assets, and return on invest-
ment. We used sales growth rate and the profit growth
rate as indicators of growth potential.
3. Analysis of Correlation between
Corporate Climate Change Management
and Financial Performance
We analyzed the correlation between corporate climate
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Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
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132
change management and financial performance using
2010 data. We found no significant correlations when we
analyzed all 519 targeted global companies together.
Average standardized scores for climate change man-
agement performance criteria vary widely between the
three countries (Japan, the United States, and the United
Kingdom) as shown in Figure 1. The individual topic or
dimension scores for corporations were quite homoge-
neous within countries but there were large differences
between countries for most of the topics. For example,
Japanese companies’ score on emissions accounting is
very low because the emissions trade scheme is not na-
tionally regulated in Japan, reducing the need for external
verification/assurance of emissions by companies. When
results were analyzed for the three countries separately,
correlations at the 5% significance level were found be-
tween corporate climate change management and finan-
cial performance, as shown in Figures 2-4.
targets may have a favorable impact on profitability. The
positive correlations between emissions accounting and
profitability, and between emissions reduction targeting
and profitability both suggest that Japanese companies
tend to make capital investments that aim for emissions
reduction as well as high profits.
3.2. Result for US Companies
For the 149 US companies, there were both positive and
negative significant correlations between climate change
management and financial performance. The CF between
return on turnover and opportunities was 0.22, and the
CF between return on assets and emissions reduction
activity was 0.24. These results imply that climate
change opportunities do not lead to efficient use of assets
in US companies. On the other hand, we found positive
correlations between the EV and climate change perfor-
mance. The CF between EV and governance and strategy
was 0.28, the CF between the EV and emissions reduc-
tion activity was 0.22, and the CF between the EV and
communication was 0.24. The positive correlations sug-
gest that the companies that prioritize socially responsi-
ble investment (SRI) by focusing on internal governance
and external communication also aim to maximize the
company’s market value.
3.1. Result for Japanese Companies
For the 108 Japanese companies, positive correlations
were found between emissions accounting and profitabil-
ity, and between emissions reduction target and profit-
ability. The correlation factor (CF) between the return on
turnover and emissions accounting was 0.22, the CF be-
tween return on assets and emissions accounting was
0.21, the CF between return on assets and emissions re-
duction targeting was 0.26, and the CF between return on
investment and emissions reduction target was 0.28. Also,
the enterprise value (EV) was positively correlated with
governance and strategy with a CF of 0.22.
3.3. Result for UK Companies
For the 99 UK companies, positive correlations between
climate change management and EV were comparatively
high. The CF between the EV and governance and strat-
egy was 0.22, the CF between EV and opportunities was
0.35 and the CF between the EV and communication was
0.25. As with the US companies, climate change man-
These results imply that climate change management
is related to efficient financial management of Japanese
corporations and that actively setting emissions reduction
Japan United States United Kingdom
Governance
and strategy
Risks Opportunities Emissions
accounting
Emissions
reduction target
Emissions
reduction activity
Communication
0.5
0.4
0.3
0.2
0.1
0
0.1
0.2
0.3
0.4
Figure 1. Average standardized score for corporate climate change management performance by topic and country.
Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
133
Climate Change
Management
Performance
Financial
Performance
0.22
0.22
0.21
0.26
0.28
Governance and
strategy
Emissions
accounting
Emissions
Reduction target
Return
on tumover
Return
on assets
Return on
investment
EV
Figure 2. Correlation between corporate climate change
management and financial performance for 108 Japanese
companies.
Opportunities
Climate Change
Management
Performance Financial
Performance
Governance and
strategy
Emissions
Reduction target
Opportunities
Communication
0.28
0.22
0.24
0.24
0.22 Return
on assets
EV
Figure 3. Correlation between corporate climate change
management and financial performance for 149 US compa-
nies.
Climate Change
Management
Performance
Financial
Performance
Return
on assets
EV
Governance and
strategy
Opportunities
Emissions
accounting
Communication
0.22
0.25
0.35
0.21
Figure 4. Correlation between corporate climate change
management and financial performance for 99 UK compa-
nies.
agement in the UK appears to correlate with valuation in
the financial market, generally reflecting the opinion of
investors. Unlike the US companies, the positive correla-
tion between the EV and opportunities suggests an envi-
ronment exists in the UK that encourages companies to
act on opportunities for climate change management.
3.4. Conclusion for the Correlation Analysis
The correlation analyses above show that the climate
change management performance is related to financial
performance, but in ways that depend on each country’s
business culture. The results indicate that better man-
agement of climate change issues can enhance corporate
financial performance and attract investors.
4. Case Study: Japanese Automobile
Manufactures
Corporations are evaluated not only by investors through
financial and non-financial information but also by cus-
tomers through their products and/or services. To learn
how customer choice affects corporate financial per-
formance we conducted a case study targeting Japanese
automobile manufacturers. According to a survey by
Japan Automobile Manufacturer Association, after price
and vehicle operation, customers focus on environmental
design more than vehicle body design when buying a car
[3]. We performed this study to confirm whether auto-
mobile manufacturers that sell more fuel-efficient vehi-
cles gain a financial advantage situation and score higher
on climate change management.
Methodology
We selected six Japanese automobile manufacturers for
the sample: Toyota Motor, Nissan Motor, Honda Motor,
Mazda Motor, Mitsubishi Motor and Fuji Heavy Indus-
tries. Only standard-sized and compact passenger vehi-
cles sold in Japan were considered, with vehicle fuel ef-
ficiency obtained from published data (based on the Ja-
panese 10-15 test mode), sales volume for standard-
sized vehicles obtained from Automobile Inspection &
Registration Information Association data and sales of
compact vehicles from the Japan Mini Vehicles Associa-
tion (Daihatsu data are consolidated with Toyota data,
and Suzuki Motor is excluded because of its high ratio of
compact to standard-sized vehicles sold).
The average of vehicle fuel efficiency for each manu-
facturer is defined by Equation (1). A higher value re-
sults when more fuel-efficient vehicles are sold, and is
assumed to reflect customers’ environmental awareness.
The trend of increased average fuel efficiency over a ten-
year period is clear from Figure 5.
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Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
134
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
Toyota
Nissan
Honda
Mazda
Fuji
Mitsubishi
Average fuel efficiency
Figure 5. Average fuel efficiency of vehicles sold by each manufacturer.
,
,
,all
Qi Qi
Qave Q
EN
EN
,
(1)
EQ,ave: Average fuel efficiency of vehicles sold by ma-
nufacturer Q;
EQ,i: Fuel efficiency of vehicle i;
NQ,i: Number of vehicle i sold.
We then analyzed correlations between the manufac-
turers’ average vehicle fuel economy and financial fac-
tors including EV and the stock ownership ratio of in-
vestors, and also with climate change management per-
formance as described here. Regarding the stock owner-
ship ratio of investors, we distinguished between Japa-
nese institutional investors, foreign institutional investors,
and CDP signatories to account for different investing
environments. Institutional investors in countries other
than Japan are more interested in ESG, while in Japan
there is low awareness of socially responsible investment
and public discussion of ESG has only started recently.
CDP signatories are considered likely to be most con-
cerned with corporate climate change management.
5. Result
As seen in Figure 6, there were positive correlations be-
tween corporate vehicle fuel efficiency and financial per-
formance, and these generally increased rapidly over re-
cent years. The average of corporate vehicle fuel effi-
ciency was correlated with the natural log of EV. The
increased correlation since 2008 suggests the growing
importance placed by investors on companies’ success in
the fuel-efficient market segment. Similarly, the average
fuel efficiency is correlated with the stock ownership
2007 2008 2009 2010 2011
Year
1.20
1.00
0.80
0.60
0.40
0.20
0.00
0.20
Correlation factor with average fuel efficiency
N
atural log of EV
Stock ownership ratio of foreign investors
Stock ownership ratio of foreign CDP signatories
Figure 6. Correlation factor with average corporate fuel ef-
ficiency.
ratio of the foreign institutional investors.
In addition, the average corporate vehicle fuel econ-
omy was correlated with corporate climate change risk
and opportunity assessment at a statistically significant
level in 2011. This result suggests that vehicle manufac-
turers realize that responsiveness to customer demand for
environmental design is a business opportunity while
failure to respond it is considered a risk. Tables 8 and 9
show the correlations between the factors in 2010 and
2011.
6. Conclusions
Using data from a survey of 519 corporations, we found
positive correlations between an original index of corpo-
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Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
135
Table 8. Correlation factors in 2010.
Average of
fuel efficiency ln(EV)
Stock ownership
ratio of Japanese
investors
Stock ownership
ratio of foreign
investors
Stock ownership
ratio of Japanese
CDP signatories
Stock ownership
ratio of foreign
CDP signatories
Risks Opportunities
Average of fuel efficiency 1.00
ln(EV) *0.94 1.00
Stock ownership ratio of
Japanese investors 0.33 0.43 1.00
Stock ownership ratio of
foreign investors
*0.98 *0.94 0.49 1.00
Stock ownership ratio of
Japanese CDP signatories 0.26 0.23 0.74 0.10 1.00
Stock ownership ratio of
foreign CDP signatories
*0.97 *0.87 0.39 *0.97 0.19 1.00
Risks *0.84 0.62 0.28 *0.84 0.06 *0.90 1.00
Opportunities *0.89 0.74 0.49 *0.92 0.11 *0.90 *0.94 1.00
*Significant at 5% level.
Table 9. Correlation factors in 2011.
Average of fuel
efficiency ln(EV)
Stock ownership
ratio of Japanese
investors
Stock ownership
ratio of foreign
investors
Stock ownership
ratio of Japanese
CDP signatories
Stock ownership
ratio of foreign
CDP signatories
Risks Opportunities
Average of fuel efficiency 1.00
ln(EV) *0.83 1.00
Stock ownership ratio of
Japanese investors 0.56 0.34 1.00
Stock ownership ratio of
foreign investors 0.76 0.79 0.56 1.00
Stock ownership ratio of
Japanese CDP signatories 0.27 0.02 0.93 0.35 1.00
Stock ownership ratio of
foreign CDP signatories
*0.83 0.79 0.67 *0.99 0.45 1.00
Risks 0.77 0.66 0.43
*0.84 0.16 *0.86 1.00
Opportunities 0.78 0.72 0.38 *0.85 0.09 *0.86 *0.99 1.00
*Significant at 5% level.
rate climate change management and financial results of
the corporations. We also found differences in these rela-
tionships at the national level that may reflect different
business environments and levels of climate change awa-
reness. For Japanese companies, positive correlations be-
tween emissions accounting and profitability, and be-
tween emissions reduction targeting and profitability,
imply that Japanese companies make capital investments
that aim to reduce their carbon footprint as well as gen-
erate profits. US companies showed some of these same
positive correlations except the CF between climate
change management and return on assets which was
negative. For UK companies there was a high correlation
between a corporation’s enterprise valuation and how it
sees opportunities for climate change action.
The case study of Japanese automobile manufacturers
shows that sales of fuel-efficient vehicles closely corre-
late with the company’s evaluation in financial markets,
especially its attractiveness for foreign investors. We also
found a relationship between higher sales of the fuel-
efficient vehicles and how the company addresses cli-
mate change risks and opportunities.
Though these results do not prove cause-and-effect,
the correlations found suggest plausible relationships be-
tween corporate climate change activities and financial
performance. Further research is needed to clarify these
relationships, which we will do by analyzing different
sectors, using longitudinal data and statistical tests for
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Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
136
causality.
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