The Green Maze - Assessing ownership structures and their drive for ESG practices

Abstract

With the development trend of sustainable investing, more research focuses on whether ESG is related to high financial returns. This study investigates the relationship between ESG performance and key financial indicators, while examining how ownership structures affect ESG performance. More specifically, this research aims to find out whether ESG scores lead to better financial returns and identify what types of owners are most committed to these practices despite potentially lower financial gains. By exploring the financial implications we can better understand what is driving different ownership groups toward sustainability. Using a quantitative approach, this study employs panel data analysis to investigate the relationship between ESG scores and financial performance across different ownership types. To address endogeneity and ensure robust results, a Generalized Method of Moments (GMM) model with a one-period lag is utilized. The data, sourced from Refinitiv, Capital IQ, and corporate reports, provides a historical perspective on the ESG performance, ownership structures, and financial outcomes of 469 Nordic companies over the past decade. The findings reveal that higher ESG scores do not consistently correlate with improved financial performance as measured by ROA and Market to Book. There is significant variability in ESG commitments among different ownership structures. Family and institutional owners prioritize ESG practices due to long-term strategic and ethical considerations, even without immediate financial benefits. Government ownership and foreign ownership also received positive correlations. Conversely, private ownership is linked to a negative correlation to ESG scores, indicating a focus on short-term financial returns over sustainability.