Reducing Carbon Intensity Can Boost Financial Performance in Nordic Firms

New research from Lappeenranta–Lahti University of Technology [61.1°N ,28.1°E] reveals a compelling link between environmental responsibility and financial success for Nordic companies. A recent study of 57 major firms across Denmark, Finland, Norway, and Sweden, found that cutting carbon emissions intensity — measured as emissions per unit of revenue — can improve profitability, though the relationship is nuanced.

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Key Findings: Sustainability Pays Off, But Not Always Predictably

1. Carbon Intensity Hurts Profits—Especially Post-COVID
   The study found that higher carbon intensity negatively impacts financial performance, particularly when measured by return on equity (ROE) and gross profit. For example, a 1% increase in carbon intensity reduced ROE by 0.06% pre-pandemic. However, this effect became more pronounced during COVID-19: firms with lower carbon intensity saw better gross profit margins, likely due to operational efficiency and investor preference for resilient, sustainable businesses. Why it matters: Investors and regulators are increasingly prioritizing climate risks. Firms that reduce emissions may mitigate financial volatility and align with EU sustainability directives, such as mandatory climate reporting for large companies starting in 2024.
2. Renewable Energy Is a Clear Winner
   Transitioning to renewable energy emerged as the most effective strategy for lowering carbon intensity. Firms that sourced 35% or more of their energy from renewables (like wind or hydropower) significantly reduced emissions without compromising output. This aligns with Nordic countries’ leadership in clean energy adoption, where Denmark and Sweden have cut per capita CO₂ emissions by over 30% since 2012.
3. R&D and Energy Efficiency: Surprising Gaps
   Contrary to expectations, the study found no statistically significant link between R&D spending or energy efficiency improvements and lower carbon intensity. This challenges assumptions that innovation alone drives sustainability. Researchers suggest that R&D may focus on non-environmental areas, while energy efficiency gains could be offset by production scaling.

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The COVID-19 Wildcard

The pandemic reshaped the sustainability-finance nexus. Pre-2020, carbon intensity’s impact on ROE and ROA was modest. Post-2020, however, firms with high carbon intensity faced steeper profit declines, possibly due to disrupted supply chains and energy price spikes. Meanwhile, companies using renewables weathered the storm better, underscoring the value of decarbonization in crises.

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Implications for Nordic Businesses

• Prioritize Renewables: With Norway aiming for 55% emissions cuts by 2030 and the EU targeting climate neutrality by 2050, transitioning to renewables is both a regulatory and strategic imperative.
• Look Beyond R&D: Innovation must target emission-specific solutions, such as green technologies or circular production models, to yield measurable climate benefits.
• Transparency Matters: As investors penalize high emitters (S&P 500 firms lose $212,000 in value per 1,000 metric tons of CO₂), robust sustainability reporting can enhance market trust.

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Limitations and the Road Ahead

The study focused on large, listed firms, so findings may not apply to SMEs. Additionally, scope 3 emissions (indirect emissions from supply chains) were excluded due to data gaps. Future research could explore sector-specific strategies—especially in high-pollution industries like manufacturing—and the role of carbon pricing policies.

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Conclusion: Profitability and Planet Can Coexist

Korhonen’s research adds to growing evidence that decarbonisation isn’t just ethical—it’s economically smart. While the financial returns may vary, Nordic firms that lean into renewables and transparent reporting are likely to gain a competitive edge in an era where sustainability is synonymous with resilience.

As one Swedish manufacturing executive noted: “Lowering emissions isn’t a cost—it’s an investment in lasting value.” For Nordic companies, that investment is starting to pay dividends.

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For policymakers and business leaders, the message is clear: Accelerating the green transition isn’t just good for the planet—it’s a strategic play for long-term growth.

Source

Carbon Intensity and Firm Financial Performance: Evidence from Nordic Firms, Riikka Korhonen