The financial performance differences between ESG and Non-ESG Firms in the Nordic Region – A quantitative analysis

Abstract: This thesis presents a rigorous empirical analysis on the relationship between financial performance and ESG scores in Nordic firms from 2017 to 2022. The analysis utilizes fixed effects regression methods with cluster-robust standard errors at the company level. The findings indicate a negative relationship between ESG scores and financial performance, though the significance level varies across different metrics. The analysis does not support the two hypotheses that ESG-compliant firms outperform non-ESG firms, as the coefficients for ESG scores are not statistically significant. The findings align with the Efficient Market Hypothesis (EMH), suggesting that ESG information is already reflected in asset prices. The results also support shareholder theory, indicating no evidence that prioritizing ESG considerations leads to superior financial performance. The paper acknowledges the limited explanatory power of the model and suggests future research to explore different aspects of ESG and their impact on financial and non-financial outcomes. Overall, the findings provide insights for policymakers, investors, and managers in the Nordic region, encouraging the adoption of sustainable practices for improved financial performance and broader societal benefits.