Using an event study methodology, we investigate how unexpected political events affect climate-sensitive sectors. We find that events related to climate change policy have significantly impacted returns. The clean energy sector benefitted from the Paris Agreement, Climategate, and Fukushima since these events increased climate change awareness and favor toward policies related to reducing the impact of climate change. For the utilities, energy-intensive, and transport sectors, these events imply increased transition-related political and market risks, which should be compensated. Events weakening climate change policy are associated with positive abnormal returns for the fossil energy sector. We further find that stock market investors are quick to adapt to new information related to climate change. Policymakers should be aware of such events' impact on the stock market because the investors are likely to price in both climate risk and expectation about sectors' growth.

This thesis investigates the link between environmental, social and corporate governance (ESG) ratings and financial performance in the Norwegian stock market. We apply a sensitivity approach by using the Dow Jones Sustainability Nordic Index (DJSND) to measure firms' sensitivity and exposure to ESG factors from 2009-2018. The econometric framework applies a portfolio strategy, as well as a cross-sectional regression. The constructed ESG portfolios do not show any significant return difference based on a high-low strategy, which is robust for market sensitivity, investment style, and industry bias. Regarding the explanatory power and pricing of the ESG factor, we find no supporting evidence. Our results do not suggest any connection between ESG and stock returns in the Norwegian stock market.i Forord Denne masteroppgaven er skrevet som en avsluttende del av masterstudiet ved Nord Universitet innen profileringen finansiering og investering. Oppgaven har vaert krevende og utfordrende, men samtidig veldig laererik. Vi har valgt å skrive avhandlingen som en artikkel med tilhørende kappe i motsetning til den mer tradisjonelle masteroppgaven. Motivasjonen og målsetningen for dette har vaert å komprimere innholdet slik at det er mer tilgjengelig for leseren, og slik at vi kan publisere arbeidet etter sensur. I arbeidet med oppgaven har vi hatt mange gode støttespillere, som hver og én fortjener en stor takk. Først og fremst ønsker vi å takke vår veileder, Thomas Leirvik, som har bidratt med høy kompetanse og kunnskap, og god veiledning gjennom hele prosessen. Videre ønsker vi å takke Yevheniia Antoniuk og Oleg Nenadić, som har stilt opp når vi trenger det oghjulpet oss med tekniske utfordringer. Oppgave hadde helt klart ikke vaert den samme uten dere.Vi har valgt Science of the Total Environment som publiseringsjournal, og artikkelen er derav skrevet etter journalens retningslinjer. 1

The green bond market develops rapidly and aims to contribute to climate mitigation and adaptation significantly. Green bonds as any asset are subject to transition climate risk, namely, regulatory risk. This paper investigates the impact of unexpected political events on the risk and returns of green bonds and their correlation with other assets. We apply a traditional and regression-based event study and find that events related to climate change policy impact green bonds indices. Green bonds indices anticipated the 2015 Paris Agreement on climate change as a favorable event, whereas the 2016 US Presidential Election had a significant negative impact. The negative impact of the US withdrawal from the Paris agreement is more prominent for municipal but not corporate green bonds. All three events also have a similar effect on green bonds performance in the long term. The results imply that, despite the benefits of issuing green bonds, there are substantial risks that are difficult to hedge. This additional risk to green bonds might cause a time-varying premium for green bonds found in previous literature.

Increased concerns about climate change and its economic impact emphasize the necessity of sustainable investment and have become a demanded research topic.Via voluntary carbon and climate-related disclosure, companies indicate their exposure to climate change risks and how they counteract them. Investors seeking to reduce the climate risk of their portfolios can utilize this information. Using the 2010-2020 Carbon Disclosure Project scoring for companies in Norway, I formed portfolios of stocks with high, low, and no scores. These portfolios represent lower, higher, and unknown climate risks, respectively. The results suggest that a valueweighted portfolio of firms with high scores generates an extra 1.3% annualized return over the market. This portfolio steadily outperformed the market in recent years based on the information and Sortino ratios. However, after controlling for recognized risk factors, the high-score portfolio has no abnormal return unless energy stocks are excluded. In contrast, low-and no-score portfolios were penalized for bearing higher climate risk so that there is a significant climate alpha after 2016. This research highlights that a climate-aligned investment strategy is profitable while offering lower climate change risk exposure.