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ESG Performance in European Financials, Industrials, and Healthcare Sectors

Rytter, Fredrika LU (2024) NEKH02 20232
Department of Economics
Abstract
The integration of environmental, social, and governance (ESG) considerations in investment decisions is pivotal, driven by global initiatives and a surge in sustainable investment strategies. This study, therefore, examines the relationship between ESG scores and stock returns over the period 2018-2022, focusing on the European financial, healthcare, and industrial sectors to identify potential differences among them. To explain these variations and understand the overall relationship between ESG and stock returns, I employ three theoretical frameworks: the ESG efficient frontier, an equilibrium model, and the stakeholder theory. To discover the relationship, I employ the Fama and French five-factor model on portfolios created based on... (More)
The integration of environmental, social, and governance (ESG) considerations in investment decisions is pivotal, driven by global initiatives and a surge in sustainable investment strategies. This study, therefore, examines the relationship between ESG scores and stock returns over the period 2018-2022, focusing on the European financial, healthcare, and industrial sectors to identify potential differences among them. To explain these variations and understand the overall relationship between ESG and stock returns, I employ three theoretical frameworks: the ESG efficient frontier, an equilibrium model, and the stakeholder theory. To discover the relationship, I employ the Fama and French five-factor model on portfolios created based on ESG scores. I then evaluate if portfolios exhibit signs of abnormal returns and if they are performing differently from each other. The results highlight minor indications of sector- specific variations; specifically, I observe no relationship between ESG (including pillars) and stock returns in the financial sector. Meanwhile, I discover a negative relationship for the G- pillar of the healthcare sector and for overall ESG. In relation to the industrial sector, I find a negative relationship with the E-pillar and overall ESG. I also observe that low-scored portfolios generally tend to outperform their high-scored counterparts. (Less)
Please use this url to cite or link to this publication:
author
Rytter, Fredrika LU
supervisor
organization
course
NEKH02 20232
year
type
M2 - Bachelor Degree
subject
keywords
ESG, Sustainable investing, CSR, Portfolio choice, Sector differences
language
English
id
9147592
date added to LUP
2024-04-16 09:27:10
date last changed
2024-04-16 09:27:10
@misc{9147592,
  abstract     = {{The integration of environmental, social, and governance (ESG) considerations in investment decisions is pivotal, driven by global initiatives and a surge in sustainable investment strategies. This study, therefore, examines the relationship between ESG scores and stock returns over the period 2018-2022, focusing on the European financial, healthcare, and industrial sectors to identify potential differences among them. To explain these variations and understand the overall relationship between ESG and stock returns, I employ three theoretical frameworks: the ESG efficient frontier, an equilibrium model, and the stakeholder theory. To discover the relationship, I employ the Fama and French five-factor model on portfolios created based on ESG scores. I then evaluate if portfolios exhibit signs of abnormal returns and if they are performing differently from each other. The results highlight minor indications of sector- specific variations; specifically, I observe no relationship between ESG (including pillars) and stock returns in the financial sector. Meanwhile, I discover a negative relationship for the G- pillar of the healthcare sector and for overall ESG. In relation to the industrial sector, I find a negative relationship with the E-pillar and overall ESG. I also observe that low-scored portfolios generally tend to outperform their high-scored counterparts.}},
  author       = {{Rytter, Fredrika}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{ESG Performance in European Financials, Industrials, and Healthcare Sectors}},
  year         = {{2024}},
}