The impact of carbon emissions on firm profitability and firm risk in Europe

Abstract

This thesis aims to assess the connection between firm profitability and firm risk in the European area for 568 companies between 2010 and 2020, incorporating times of higher investor awareness. Stock returns, return on assets, stock return volatility and operating-income volatility serve as proxies when computing panel regressions while differentiating between three scopes of emissions and three emission variables. The results suggest a negative relationship between the level and intensities of carbon emissions and firm profitability, while there is no defined correlation with firm risk. Distinguishing between the different scopes of emissions and different forms of firm risk seems to be important when making decisions in the context of carbon emissions and associated risks or opportunities. This becomes even clearer when looking at the change in emissions where I show that coefficients carry the opposite sign compared to emission levels and intensities. Furthermore, managers should adjust decision-making during times of elevated investor awareness as the negative impact of higher carbon emissions on firm profitability amplifies.

Date of Award	26 Jun 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)