Analyzing the Impact of ESG Ratings on Firm Valuation : A Comparative Study of Different Industries in the Nordics

Companies are facing an increasing demand for nonfinancial disclosure to respond the sustainability crisis. Stakeholders are increasingly supporting companies that assess their ESG practices more effectively. As Nordic companies are thought to be leaders in ESG practices, it is crucial to understand how sustainability initiatives may impact financial performance. This thesis aims to investigate whether companies’ ESG scores affect the firm valuation in the Nordic listed companies in 2013-2023. The data for this study comprises a total of 546 companies, and it is obtained from LSEG. One accounting-based and market-based metric is used as a proxy for companies’ financial performance. The random and fixed effects panel regression models are applied to answer the first research question of whether the ESG scores affect the firm valuation. The answer to the second research question, studying the industry differences, is achieved by applying the Pooled OLS model. The results of this research varied. Empirical findings of this thesis indicate that ESG scores positively affect Tobin’s Q and negatively affect ROA. The results of the industry-specific panel regression model were heterogeneous. Both positive and negative statistically significant results are found depending on the industries.