The Relationship Between Environmental, Social and Governance Factors and Firm Performance. A Study Performed on the Swedish Stock Market

Abstract

This thesis investigates the relationship between environmental, social and governance (ESG) factors and firm performance on the Swedish stock market over the years 2013-2017. Using the traditional Carhart’s four-factor model, a quantitative research method has been applied by running panel and OLS regressions on historical stock returns. The thesis finds statistically significant evidence for a negative relationship between the ESG score and firm performance. Furthermore, the findings of the study provide statistically significant evidence for a difference in risk-adjusted alphas between two portfolios, where the bottom portfolio performs better than the top portfolio. The bottom portfolio consists of the ten companies in OMXS30 with the lowest ESG scores and the top portfolio consists of the ten companies in OMXS30 with the highest ESG scores. However, the findings for the two hypotheses are small negative values nearly equal to zero and can be interpreted as no-effect scenarios. Hence, investors on the Swedish stock market could, when determining a desirable level of return, choose whether to include ESG factors without a substantial difference in return.