The growing interest in sustainable economic activities around the globe has preconditioned green investments as the essential means of environmental stewardship and corporate development. This paper tackled the less-examined financial impact of green investments within the oil and gas industry in the Gulf Cooperation Council (GCC), which is a key hydrocarbon producer facing significant climate change challenges. With a detailed quantitative design, such as encompassing a strong dynamic panel generalized method of moments (GMM) to control endogeneity and cross-sectional dependence, we examined how environmental pillar score (EPS), energy consumption (EC), and greenhouse gas (GHG) emissions affect corporate profitability (return on assets and return on equity) during the study period. With the help of theoretical approaches like stakeholder theory, resource-based view, and legitimacy theory, our results demonstrated a multi-dimensional and sometimes subtle connection between the two. Although green investments are normally associated with long-term sustainability objectives, the paper unearthed a short-term negative connection between environmental performance as reflected through EPS and profitability, which might be related to high initial costs of investment or corporate compliance. On the other hand, energy consumption will paradoxically correlate with profitability, which can be explained by the high production orientation of the sector and energy subsidies in the region. This study provides new empirical data in an important, low-studied area that expands the knowledge of green investment trends in hydrocarbon-based economies. Context-specific ESG reporting standards and focused incentives to overcome the practical realities of green transitions are two of the areas promoted in our policy recommendations as a critical approach to balance economic development and environmental responsibility in the GCC.
Citation: Ola Alaa Farrash, Edib Smolo. Green investment and corporate profitability: Evidence from the oil-gas sector in the GCC region[J]. Green Finance, 2025, 7(4): 610-633. doi: 10.3934/GF.2025023
The growing interest in sustainable economic activities around the globe has preconditioned green investments as the essential means of environmental stewardship and corporate development. This paper tackled the less-examined financial impact of green investments within the oil and gas industry in the Gulf Cooperation Council (GCC), which is a key hydrocarbon producer facing significant climate change challenges. With a detailed quantitative design, such as encompassing a strong dynamic panel generalized method of moments (GMM) to control endogeneity and cross-sectional dependence, we examined how environmental pillar score (EPS), energy consumption (EC), and greenhouse gas (GHG) emissions affect corporate profitability (return on assets and return on equity) during the study period. With the help of theoretical approaches like stakeholder theory, resource-based view, and legitimacy theory, our results demonstrated a multi-dimensional and sometimes subtle connection between the two. Although green investments are normally associated with long-term sustainability objectives, the paper unearthed a short-term negative connection between environmental performance as reflected through EPS and profitability, which might be related to high initial costs of investment or corporate compliance. On the other hand, energy consumption will paradoxically correlate with profitability, which can be explained by the high production orientation of the sector and energy subsidies in the region. This study provides new empirical data in an important, low-studied area that expands the knowledge of green investment trends in hydrocarbon-based economies. Context-specific ESG reporting standards and focused incentives to overcome the practical realities of green transitions are two of the areas promoted in our policy recommendations as a critical approach to balance economic development and environmental responsibility in the GCC.
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Ola Alaa Farrash, Edib Smolo. Green investment and corporate profitability: Evidence from the oil-gas sector in the GCC region[J]. Green Finance, 2025, 7(4): 610-633. doi: 10.3934/GF.2025023
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