The value of a good deed; ESG-scores and returns in the Nordic stock markets

Abstract

This paper seeks to answer which effect ESG-scores have on risk-adjusted returns for stocks listed on Nordic stock markets. To answer this, we create five null hypotheses and use unequal variance t-tests to determine if the hypotheses can be rejected. To make these tests, three portfolios are created where the first portfolio consists only of stocks with high ESG-ratings, the second consists only of lowly rated stocks and the third portfolio acts as a benchmark, containing all ESG-rated stocks in the Nordic region. Together, 109 companies were sampled over the period 2013 to 2022. The results show no evidence that ESG-scores have an effect on risk-adjusted returns, which is consistent with the efficient markets hypothesis as well as some previous studies on the topic. However, the results also contradict other studies and theories on the subject. Notwithstanding, the paper still provides investors in Nordic capital markets with further insights into the determinants of risk-adjusted returns.