Optimizing ESG Investment Profitability from a Swedish Perspective: The Effect of Characteristics Within and Beyond Company Control

Abstract

This paper investigates the company characteristics under which ESG investing becomes financially strategic, based on the financial performance of 276 companies listed on Nasdaq Stockholm, measured by accounting and market-based metrics. The first objective is a cross-sectional study across ten sectors. The second objective investigates the effect of investors’ short-termism. Both aspects reveal that some companies are more predisposed to gain by investing in ESG than others due to factors beyond their control, namely industry belonging and age. The last objective, on the other hand, focuses on optimizing ESG investment profitability by targeting a more easily influenced characteristic, namely managerial talent, which indicates that a lower education can be partly compensated by investing in the governance pillar. These characteristics are more effective at influencing market-based measures, while accounting-based measures show fewer significant results.