Risk and Return on ESG Rated Companies An Empirical Study on ESG for Listed Companies in the Nordic Countries

Abstract

This thesis investigates risk and return on ESG - environment, social and governance - rated public companies in the Nordic countries over the period 2018 - 2022. We further divide our sample into two sub-periods, in an attempt to capture the effect of market uncertainties. Our findings suggest that companies with high ESG scores exhibit a lower total and systematic risk than poorly rated ESG firms. We find that all ESG stock yields significantly higher abnormal returns than the market. We further construct a high rated and a poorly rated ESG portfolio for our sample period and apply a long-short investment strategy. We find negative and unsignificant alphas. The Sharpe and Treynor ratio show a shift in risk-adjusted returns during the COVID-19 period, where the highly rated ESG portfolio exhibits higher risk-adjusted returns than the low rated ESG portfolio.