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Impact of the EU Non-Financial Reporting Directive (NFRD) on Firm Profitability: A Comparative Analysis of High- and Low-Polluting Firms

Naame, Tuleen LU and Grauds, Kristofers LU (2025) NEKN02 20251
Department of Economics
Abstract
This study investigates the financial effects of the European Union’s Non-Financial Reporting Directive (NFRD), with a particular focus on whether firms’ greenhouse gas emissions influence the financial impact of these regulations. While previous research has examined the impact of ESG disclosures on financial performance, no studies have investigated whether a firm’s environmental risk, as measured by CO₂ equivalent emissions, moderates these effects in the context of regulatory disclosure requirements. Using a difference-in-differences (DiD) approach, we compare high- and low-polluting EU firms before and after the announcement of the NFRD in 2014. Our analysis covers the period from 2011 to 2024, allowing us to capture both short- and... (More)
This study investigates the financial effects of the European Union’s Non-Financial Reporting Directive (NFRD), with a particular focus on whether firms’ greenhouse gas emissions influence the financial impact of these regulations. While previous research has examined the impact of ESG disclosures on financial performance, no studies have investigated whether a firm’s environmental risk, as measured by CO₂ equivalent emissions, moderates these effects in the context of regulatory disclosure requirements. Using a difference-in-differences (DiD) approach, we compare high- and low-polluting EU firms before and after the announcement of the NFRD in 2014. Our analysis covers the period from 2011 to 2024, allowing us to capture both short- and medium-term effects. We assess financial performance using four key indicators: return on assets (ROA), return on equity (ROE), Tobin’s Q, and the cost/revenue. Our results show that firms based in the EU experienced a significant decline in ROA, ROE, and Tobin’s Q at the 5% significance level following the introduction of the NFRD. However, firms with a high level of emissions prior to the directive’s announcement were largely unaffected. By introducing emissions as a treatment effect moderator within a regulatory context, this analysis offers a perspective that challenges the assumption that policies affect all firms equally. (Less)
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author
Naame, Tuleen LU and Grauds, Kristofers LU
supervisor
organization
course
NEKN02 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
NFRD, 2014/95/EU, ROA, ROE, emissions, climate policy
language
English
id
9194009
date added to LUP
2025-09-12 10:43:00
date last changed
2025-09-12 10:43:00
@misc{9194009,
  abstract     = {{This study investigates the financial effects of the European Union’s Non-Financial Reporting Directive (NFRD), with a particular focus on whether firms’ greenhouse gas emissions influence the financial impact of these regulations. While previous research has examined the impact of ESG disclosures on financial performance, no studies have investigated whether a firm’s environmental risk, as measured by CO₂ equivalent emissions, moderates these effects in the context of regulatory disclosure requirements. Using a difference-in-differences (DiD) approach, we compare high- and low-polluting EU firms before and after the announcement of the NFRD in 2014. Our analysis covers the period from 2011 to 2024, allowing us to capture both short- and medium-term effects. We assess financial performance using four key indicators: return on assets (ROA), return on equity (ROE), Tobin’s Q, and the cost/revenue. Our results show that firms based in the EU experienced a significant decline in ROA, ROE, and Tobin’s Q at the 5% significance level following the introduction of the NFRD. However, firms with a high level of emissions prior to the directive’s announcement were largely unaffected. By introducing emissions as a treatment effect moderator within a regulatory context, this analysis offers a perspective that challenges the assumption that policies affect all firms equally.}},
  author       = {{Naame, Tuleen and Grauds, Kristofers}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Impact of the EU Non-Financial Reporting Directive (NFRD) on Firm Profitability: A Comparative Analysis of High- and Low-Polluting Firms}},
  year         = {{2025}},
}