Do higher GHG emissions involve a risk that must be compensated by a higher return? : A cross-sectional study in the Nordic stock market that examines the potential carbon risk factor from an investment perspective

Sammanfattning: This thesis will touch upon how investment decisions relate to different scopes of GreenHouse Gas (GHG) emissions reported by listed companies in the Nordic market. Two different time frames were examined, 10 years (2011-2020) and 5 years (2016-2020) respectively. The emission scopes consist of three levels that include GHG emissions originating from different stages throughout the whole value chain of the companies. Higher levels of GHG emissions might be considered as a risk that in turn requires a premium. By choosing total return as the dependent variable and the different scope levels as independent variables, the study was conducted through a firm fixed effects model with year fixed effects. The significant findings explain that investors in the Nordic market accept relatively high levels of GHG emissions when receiving higher total returns, a sort of risk premium for Scope 1 intensity level of GHG emissions. While the significant findings for the Scope 2 intensity GHG emissions shows that higher GHG emissions originating from purchased energy generates lower total returns. The findings also suggest stronger economic effects for the 5-year period, in comparison to the 10-year period. Furthermore, the findings in this thesis contribute to the debate on whether the transition to climate-adapted sustainable societies can be affected by reporting standards and interpretation regarding GHG emissions.