Company performance in a new regulatory landscape

This thesis investigates the financial implications of environmental sustainability regulations on Swedish publicly listed companies, with a focus on Scope 1 and Scope 2 greenhouse gas emissions and their interaction with the EU Emissions Trading System. In a landscape characterized by increasing regulatory stringency and rising carbon costs, understanding how these dynamics affect company performance is crucial for investors and firms alike. Two quantitative models are employed in the thesis to answer the research questions: a time series regression examining the pass-through effect of European Union Allowance prices on regional electricity prices across Sweden’s four bidding zones, and a panel regression analyzing the relationship between firm-level emission intensity and key financial performance metrics. The results indicate a significant pass-through of carbon costs to electricity prices, particularly in the southern zones (SE3 and SE4) indicating that the cost of electricity is still impacted by regulatory pricing schemes even in a largely renewable energy landscape such as the Swedish electricity grid. The panel regression results are more nuanced, showing that the relationship between emission intensity and financial performance is mixed and generally weak across the board. Certain metrics such as operational cost intensity show limited correlations under specific model specifications. These results suggest that, in the Swedish context, direct and indirect carbon costs are not systematic drivers of short-run profitability. Together, the findings add nuance to the growing literature linking carbon exposure and financial risk. While carbon pricing clearly raises electricity costs, its translation into firm-level profitability appears muted. The study therefore offers practical insights for investors, policymakers and corporate decision-makers navigating an evolving regulatory and sustainability landscape.