Assessing ESG and Board Diversity´s influence on financial performance: A study on the Scandinavian and Emerging Markets

Abstract

This study examines whether ESG and Board Diversity has a correlation with financial performance, in the form of return on equity. The analysis focuses on the Scandinavian and selected Emerging markets over the period 2013-2023, with the sample comprising firms listed in their respective countries' benchmark indices. Altogether, the Scandinavian market consists of 72 firms in Sweden, Norway and Denmark, whereas the Emerging market consists of 155 firms in Brazil, India and South Africa. The regression results from the final model featured differences between the Scandinavian and the Emerging markets. In the Scandinavian market, increased Environmental and Social scores were found to have a negative correlation with return on equity, while the effect of Board Diversity on financial performance increased with higher Social scores and decreased with higher Governance scores. In contrast, the Emerging markets unveiled that higher social scores corresponded with higher return on equity while increased Environmental score corresponded with lower return on equity. Hence, these results align with earlier research suggesting that the effect of ESG and women in Boards is rather ambiguous and depends on regional differences.