The relationship between stock returns and climate change concerns in different regions

The purpose of this thesis is to examine the relationship between climate change concerns and stock returns in different regions. The chosen regions for the evaluation are the USA, Europe, and the Nordic countries. The sample consists of data for the period 1.1.2010-31.5.2024. For the examination, two simple linear regression models are constructed. These Models aim to elaborate how the Media Climate Change Concern (MCCC) index affects the returns of stock indices in different regions. In addition, with thematic climate change concern indices, it is possible to locate which type of concerns have the most significant effect on returns. Lastly, additional analysis is performed by analyzing how the relationship has evolved as attention towards climate change has strengthened. This thesis is motivated by the growing importance of sustainability and climate change as critical global challenges that impact economic systems and financial markets. Traditional and behavioral finance theories, which elaborate the basis of stock price formation on the market, provide a theoretical background for this thesis. Also, the importance of climate risks for investors and the consistent development of sustainability justifies the materiality of climate change concerns. Furthermore, supporting the objective of this thesis. The results of this thesis are mainly aligned with the presented hypotheses. The increase of climate change concerns has a negative impact on the stock returns in most of the regions. Also, in the USA, Finland, and Sweden evidence is found that the negative impact on the returns is strongest for the transition risk related climate change concerns. Whereas, in Europe, Denmark, and Norway the climate change concerns linked to physical risks have the strongest negative impact on the stock returns. These results confirm a recognizable relationship between climate change concerns and stock returns. The regional differences would indicate that the importance of climate change concerns varies depending on the region, which can be further traced back to the sustainability differences of the regions. This has important implications for the risk management of investors. While providing information on the importance of climate change concerns to policymakers and companies.