The effects of the European Commission’s CSRD announcement on high-exposure Nordic firms’ ESG scores and financial performance

Abstract

In recent years, considering the increased awarness of sustainability and in particular firms’ impact on the environment and the society, the European Union has successively aimed to transition toward a more sustainable and resilient business environment. This development has raised requirements for firms and their approach to sustainable development, particularly following the announcement of the European Commission’s Corporate Sustainability Reporting Directive (CSRD). Given the globally increased reporting requirements, and specifically the CSRD announcement in 2022, this study investigates how Nordic firms operating in high-exposure sectors responded to the announcement in terms of Environmental, Social and Governance (ESG) performance and financial performance. The analysis is performed by applying a difference-in-differences approach using annual panel data. In total, the study cover 121 firms from Sweden, Denmark and Finland. The treatment group consists of firms operating in high-exposure sectors, defined based on environmental impact. The results reveal a statistically significant negative effect on ESG performance, measured by ESG scores, following the announcement. Financial performance, measured by Tobin’s Q, shows a statistically significant positive change. The implications of the findings suggest that while CSRD is positively valued by financial markets, observable improvements in ESG scores may take longer to materialize. The findings provide empirical evidence regarding announcement effects of the CSRD in the Nordic region, highlighting how firms and markets adjust to mandatory, standardized sustainability reporting, and offers insights into potential future impacts of the full CSRD implementation.