How Sustainability Regulation and Institutional Investor Influence Affect Corporate Emissions- Evidence from the Non Financial Reporting Directive and the Swedish Fourth National Pension Fund

Abstract

This paper aims to investigate the impact of institutional investors and reporting standards on firm behaviour. More specifically, it examines the effect of the EU's Non Financial Reporting Directive (NFRD) and the Fourth Swedish National Pension Fund (AP4) on firms’ greenhouse gas emissions. Using a Difference-in-Difference regression on emissions data from 2014-2023 we firstly compare AP4 invested companies in the EU with AP4 invested companies in the UK and secondly we compare AP4 invested companies in the EU with non AP4 invested companies in the EU. The first analysis shows that our EU companies emit less while emissions increased after NFRD. The second analysis shows no significant effect of an institutional investor on firm behaviour. The results from both analyses suggest that AP4 may engage in portfolio tilting and further they question the reliability of ESG scores as a sustainability metric for companies.