The Impact of ESG Ratings on Stock Returns - An Analysis of Swedish Large-Cap Companies

Abstract

This thesis investigates the impact of ESG (Environmental, Social, and Governance) scores on stock returns for large-cap companies listed on the Swedish stock market. The dataset, sourced from Refinitiv (Thomson Reuters), includes 114 companies from 2009 to 2023. Our findings indicate that higher ESG scores are significantly associated with negative stock returns, with environmental and social pillar scores showing negative impacts, while governance scores exhibit a slight positive but statistically insignificant effect. Additionally, the study examines the impact of ESG scores on systematic risk (Beta), revealing that higher ESG scores are associated with reduced systematic risk. The study supports both the risk mitigation theory and the over-investment theory, suggesting that higher ESG scores decrease total year returns. This provides insights into the financial implications of ESG investments and highlights the importance for investors and companies to balance financial performance with risk management and sustainability objectives.