Do CO2 emissions impact company stock returns? Evidence from European public companies between 2010-2021

Abstract

The thesis examined whether CO2 emissions drive company stock returns, in a cross-section of European publicly listed companies between 2010-2021. It found some evidence of scope 1 emissions impacting stock returns in the full study time period. Further, sector-specific impacts were observed, with scope 1 emission intensity impacting returns in consumer staples and scope 2 emission intensity impacting returns in the financial sectors to a robust level. With increasing regulatory drivers for sustainable finance, it could be that stronger results could be seen only for years after 2021. Importantly, the thesis further found that the timing of the emissions variable in relation to the timing of the stock returns has a large impact on results. Further studies should focus on refining the used methodology further, by assessing the impact of different length lags between CO2 emissions and stock returns and by testing the robustness of the results with other control variables related to company performance. The importance of understanding the relationship will only increase in the future, as finance plays a significant role in enabling the green transition via the channeling of funds.