The Impact of ESG Performance on Stock Returns: Nordic Countries
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This thesis investigates the relationship between Environmental, Social, and Governance (ESG) performance and risk-adjusted stock returns in Nordic equity markets from 2015 to 2024. Drawing on firm-level ESG scores from LSEG Workspace and market data for publicly listed non-financial firms in Denmark, Finland, Norway, and Sweden, the study constructs ESG-based portfolios and evaluates their performance using the Capital Asset Pricing Model (CAPM), the Fama-French three-factor model, and the Fama-French five-factor model. To assess whether market stress alters the ESG-return relationship, the analysis distinguishes between non-crisis periods and two crisis episodes: the COVID-19 pandemic (2020-2021) and the European energy crisis (2022-2023). The results show that high ESG portfolios do not generate superior risk-adjusted returns relative to low ESG portfolios, and the High-Low ESG strategy produces a negative alpha across the main specifications. Pillar-level analysis reveals heterogeneous effects, with the social pillar exhibiting the strongest negative association with risk-adjusted returns, a weaker negative effect for the environmental pillar, and no statistically significant effect for governance. Overall, the findings suggest that in advanced sustainability-oriented markets, ESG performance is largely priced by investors and does not generate a positive return premium.