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The E in ESG and Its Relationship to Stock Returns

Falkenborn, Hans LU and Werntoft Ahl, Vera (2025) NEKH02 20242
Department of Economics
Abstract
In this paper, we assess the relationship between the environmental pillar score (the ‘E’ in
ESG) and stock returns in the Swedish stock market. Specifically, we analyze the OMXS60
index, which comprises the 60 most traded assets on the Nasdaq OMX Stockholm Exchange,
examining how environmental ratings correlates with the development of returns.
Additionally, we investigate how this relationship is influenced by a firm's market
capitalization and risk. We use panel data analysis and apply the fixed effects model to
conduct various regressions. The empirical findings suggest that a company's environmental
rating exhibits a negative relationship with returns. Additionally, larger firms seem to benefit
more from a higher environmental... (More)
In this paper, we assess the relationship between the environmental pillar score (the ‘E’ in
ESG) and stock returns in the Swedish stock market. Specifically, we analyze the OMXS60
index, which comprises the 60 most traded assets on the Nasdaq OMX Stockholm Exchange,
examining how environmental ratings correlates with the development of returns.
Additionally, we investigate how this relationship is influenced by a firm's market
capitalization and risk. We use panel data analysis and apply the fixed effects model to
conduct various regressions. The empirical findings suggest that a company's environmental
rating exhibits a negative relationship with returns. Additionally, larger firms seem to benefit
more from a higher environmental rating, as indicated by a near-zero relationship with
returns, although this finding was not statistically significant at a high level. The results for
mid-cap firms were not significant, thus no reliable conclusions could be drawn for this
segment. Furthermore, the analysis indicates that more volatile firms gain more from a higher
environmental rating, although this finding lacked strong statistical significance as well.
Notably, the relationship between the environmental pillar score and returns appeared to be
most negative during the Covid-19 pandemic compared to the periods before and after.
However, the effect was only significant in the post-pandemic period, with no significant
effect observed in the pre-pandemic period. (Less)
Please use this url to cite or link to this publication:
author
Falkenborn, Hans LU and Werntoft Ahl, Vera
supervisor
organization
course
NEKH02 20242
year
type
M2 - Bachelor Degree
subject
keywords
ESG, E-rating, environmental pillar score, financial performance, returns
language
English
id
9184041
date added to LUP
2025-05-16 10:46:32
date last changed
2025-05-16 10:46:32
@misc{9184041,
  abstract     = {{In this paper, we assess the relationship between the environmental pillar score (the ‘E’ in
ESG) and stock returns in the Swedish stock market. Specifically, we analyze the OMXS60
index, which comprises the 60 most traded assets on the Nasdaq OMX Stockholm Exchange,
examining how environmental ratings correlates with the development of returns.
Additionally, we investigate how this relationship is influenced by a firm's market
capitalization and risk. We use panel data analysis and apply the fixed effects model to
conduct various regressions. The empirical findings suggest that a company's environmental
rating exhibits a negative relationship with returns. Additionally, larger firms seem to benefit
more from a higher environmental rating, as indicated by a near-zero relationship with
returns, although this finding was not statistically significant at a high level. The results for
mid-cap firms were not significant, thus no reliable conclusions could be drawn for this
segment. Furthermore, the analysis indicates that more volatile firms gain more from a higher
environmental rating, although this finding lacked strong statistical significance as well.
Notably, the relationship between the environmental pillar score and returns appeared to be
most negative during the Covid-19 pandemic compared to the periods before and after.
However, the effect was only significant in the post-pandemic period, with no significant
effect observed in the pre-pandemic period.}},
  author       = {{Falkenborn, Hans and Werntoft Ahl, Vera}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The E in ESG and Its Relationship to Stock Returns}},
  year         = {{2025}},
}