Dirty Returns: Greenhouse Gas Emissions Intensity and Future Stock Performance in the Nordic Equity Markets

Sammanfattning

This study examines whether greenhouse gas emissions intensity is priced in the equity markets of Sweden, Denmark, Finland, and Norway, a setting characterised by decades of strict regulation and deep ESG-investor presence. Using data drawn from the Swedish House of Finance’s Nordic Compass dataset and S&P Capital IQ Pro over the period 2014-2024, the study employs a panel regression with progressively added controls and a firm fixed-effect specification, alongside a within-industry quintile portfolio sort on greenhouse gas emissions intensity. The regression finds a positive and statistically significant relationship between emissions intensity and forward returns for large-cap firms, consistent with preference-based undervaluation driven by ESG-mandated exclusion. For mid-cap firms, the association reverses. The portfolio produces a mean annual H-L return of -5.76%, significant at the 5% level, indicating that the emissions intensity premium cannot be captured through a simple emissions-based strategy at the aggregate level. The results suggest that the relationship between greenhouse gas emissions and returns is sensitive to firm size and whether firm characteristics are controlled for, with direct implications for emissions-based investment strategies in markets with strong ESG awareness.