The Nordic investors valuation of ESG. Is there a correlation between the ESG score and the stock price of companies listed in the Nordic markets?

Abstract

This study investigates the relationship between the sustainability (ESG) disclosure and the stock price of the companies listed in the Nordic countries. We have analyzed a data panel consisting of 1350 firm-year observations from 153 firms during the years 2010-2019 using a modified Ohlson model. The results support a positive correlation between ESG performance and firm value in the Nordic countries. A further investigation into subcategories reveals that the environmental effect is the strongest. The social score provides a somewhat weaker but more significant effect, while the governance score does not provide any significant correlation with the firm value. A deeper investigation of the environmental category indicates that stock price has a significant positive relationship with both resource use and the lagged emission score. Interestingly, environmental innovation shows no significant correlation. We also find support for a delayed market response, as the lagged version of all variables gives stronger explanatory power and more significant results than the observation from the year of the examined market value. Overall, our study finds support that investors see value being created from positive changes in the ESG scores of companies. Therefore, from an investor perspective, this study finds support for the stakeholder theory. Interestingly, we also find that a higher ESG score is negatively correlated to return on assets when testing the causality, which supports the shareholder theory.