Real Estate and ESG Rating A cross-sectional study of ESG Risk, ESG Management and financial performance

Abstract

Environmental destruction and social sustainability issues are more relevant than ever. The human impact causing social and environmental destruction has led to a forced market movement worldwide where sustainability awareness has grown amongst stakeholders. The use of company ESG ratings when evaluating a company and its financial performance has increased during recent years because of this. The purpose of this thesis is to define the quantitative relationship between company ESG Risk Rating measured by Sustainalytics and the financial performance of companies within the Scandinavian real estate industry. The thesis also aims to answer if strong ESG Management Score implies good financial performance within the same subindustry. Previous research shows no distinct answer regarding the topic which invites new empirical evidence to answer the question. Four hypotheses are formulated to answer the research questions. The hypotheses seek to analyse the correlation between ESG Risk Rating and two financial ratios through regression analyses and ANOVA tests. The financial ratios used in the analysis are price-to-book ratio and return on equity. The analysis including the return on equity did not show significant results. From the significant test results, the conclusion that ESG performance negatively correlate with price-to-book ratio could be made.