Impact of ESG on Financial Profitability A Comparative Analysis Between Sweden and the Rest of the Nordic Regions Non-Financial Firms

Abstract

This study investigates if Environmental, Social, and Governance (ESG) factors do have any impact on the financial profitability of Nordic non-financial firms and if there are any distinctions between Sweden and the other Nordic countries. The dataset has been collected from 2010 to 2023 for a total of 496 Nordic firms. OLS regressions have been utilized to estimate the optimal prediction. With Return on Assets (ROA) and Return on Equity (ROE) as proxies for financial profitability, we find a complex and mixed relationship. For Swedish firms, a positive and significant relationship between ESG scores and ROA was observed, indicating that sustainable practices enhance asset utilization efficiency. Conversely, a negative relationship between ESG and ROA was found in the rest of the Nordic countries, potentially due to industry composition and regulatory differences. ROE results were generally negative and insignificant across all countries, suggesting other firm-specific factors influence profitability. The study highlights the importance of local contexts, regulatory environments, and cultural values in shaping the financial outcomes of ESG initiatives. The findings underscore the need for more granular analysis and suggest that future research should explore long-term impacts and sector-specific effects. This research contributes to the understanding of ESG's financial implications and informs stakeholders, policymakers, and investors aiming to promote sustainable corporate practices.