The Effect of Sustainability Commitment. Does joining a voluntary program change the behavior of a company?

Abstract

This thesis explores the effect of joining a voluntary sustainability commitment, the UN Global Compact, on companies financial and emissions outcomes. To analyze our research questions, we have assembled an unbalanced data set and implemented a difference-indifferences analysis. The data in our thesis is collected from Thomson Reuters Eikon database, the CO2 emissions data from the Norwegian Environment Agency, and administrative information from the UN Global compact. A total of 410 Norwegian companies had joined the UN Global Compact from its inception in 2000 and until the end of 2022. From the financial performance data set from Eikon we have 13.558 observations, and from the emissions data set we have 5.370 observations. The interest in investigations of sustainability commitments and the effect on financial performance has seen an enormous growth in the last decade. Our study finds results evidence that sustainability commitment has a positive impact on stock price returns. This suggests that financial performance improves when joining the UNGC. We also find similar findings when we control for a balanced panel. The results from our analysis on emissions data gives us a contradictional effect compared to our original hypothesis. When we separated into two industries, however, this did not give any indication of reducing emissions after joining the UNGC. Rather the indications that some companies might have good intention when they commit but fail to implement new operation methods to reduce the emission levels of CO2. To understand the relationship between financial performance and social responsibility, we estimated a third analysis. From this analysis we see poor financial performance in the years before the company joins the UNGC. However, one year post treatment, we see a slightly positive effect on net income, which also increases in magnitude two years post treatment. For the third year after the company joined the UNGC we still see a positive effect on net income, but smaller in magnitude.