Determining the impact of ESG metrics on the financial performance of public Nordic companies

Abstract: The use of sustainability within the investment community is becoming increasingly common. More specifically, investors are now more than ever leaning towards ESG scores as a way of incorporating a more holistic approach when making investment decisions. However, the evidence for a relationship between financial performance and ESG scores is inconsistent. Besides, a recent study has also shown a large divergence between ESG scores. Together this urges a need for a more in-depth understanding of which, if any, non-financial metrics have an impact on financial performance. Therefore, this study investigated if there is any relationship between ESG metrics and financial performance for Nordic public companies by performing a multiple linear regression analysis. Our results concluded that such a relationship exists, both for accounting-based ROA and market-based Tobin’s Q between 2017-2018. This study also shows that there is an overall concentration towards social metrics for both models. Secondly, it shows that some metrics such as “Percentage of Female Employees” are positively significant for ROA but not valued by the market model. The opposite outcome also exists where “Code of Conduct/Ethics Policy” is positively significant for Tobin’s Q but not for ROA. Lastly, it is also shown that some important metrics are negative significant for ROA and therefore urging for inclusion of non-financial measurements when making strategic decisions.