Green investing in Europe: Financial shocks and their effects on firm emissions

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School of Business | Bachelor's thesis
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Date

2026

Department

Rahoituksen laitos

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Mcode

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Rahoitus

Language

en

Pages

15 + 2

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Abstract

Changes in cost of capital and other financial shocks have been empirically proven to affect the greenhouse gas emissions from companies in the US, as shown by Hartzmark & Shue (2022). This study attempts to measure the effects of these same shocks in the European market and compare them to the findings from the US data. The results from European markets are inconclusive: When using proxies for real performance, data from 2005 to 2024 indicates that there is no statistically significant correlation between firm performance and their emissions. Cost of capital has an expected positive correlation to emissions, but with more effect on green and neutral firms compared to brown ones. When analysing older data from 2005-2015 as a control measure, significant estimators are found and are in line with US data, suggesting that the elasticity in emissions has existed but since disappeared. This dilution of emissions elasticity is most likely the result of EUs more strict environmental regulation and more intensive focus on ESG in European companies. Changes in cost of capital and other financial shocks have been empirically proven to affect the greenhouse gas emissions from companies in the US, as shown by Hartzmark & Shue (2022). This study attempts to measure the effects of these same shocks in the European market and compare them to the findings from the US data. The results from European markets are inconclusive: When using proxies for real performance, data from 2005 to 2024 indicates that there is no statistically significant correlation between firm performance and their emissions. Cost of capital has an expected positive correlation to emissions, but with more effect on green and neutral firms compared to brown ones. When analysing older data from 2005-2015 as a control measure, significant estimators are found and are in line with US data, suggesting that the elasticity in emissions has existed but since disappeared. This dilution of emissions elasticity is most likely the result of EUs more strict environmental regulation and more intensive focus on ESG in European companies.

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Thesis advisor

Kokkonen, Joni

Keywords

emissions, cost of capital, Europe, green, investing

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https://urn.fi/URN:NBN:fi:aalto-202602152526

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