Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Is ESG Financially (Ir)relevant?

Persson Vildir, Hedda LU and Stense, Nikitá LU (2025) NEKH02 20251
Department of Economics
Abstract
This study examines the relationship between Environmental, Social, and Governance (ESG) performance and stock returns within the STOXX Europe 600 Index over the period 2019–2024. A balanced panel dataset was constructed by applying a frozen basket approach including 465 firms with continuous index membership and complete ESG data from Refinitiv Eikon.

The analysis evaluates whether ESG scores, treated as continuous variables and through quintile-based portfolios, are associated with abnormal returns by examining both within-firm and between-firm variation. Financial performance is also assessed using cumulative returns, CAPM-based beta and (Jensen´s) alpha, and risk-adjusted metrics including Sharpe and Treynor ratios.

The results... (More)
This study examines the relationship between Environmental, Social, and Governance (ESG) performance and stock returns within the STOXX Europe 600 Index over the period 2019–2024. A balanced panel dataset was constructed by applying a frozen basket approach including 465 firms with continuous index membership and complete ESG data from Refinitiv Eikon.

The analysis evaluates whether ESG scores, treated as continuous variables and through quintile-based portfolios, are associated with abnormal returns by examining both within-firm and between-firm variation. Financial performance is also assessed using cumulative returns, CAPM-based beta and (Jensen´s) alpha, and risk-adjusted metrics including Sharpe and Treynor ratios.

The results show no consistent evidence of a significant relationship between ESG scores and financial performance, based on both regression analysis and risk-adjusted return metrics. Once firm-specific controls such as size, valuation, industry, and country are included, the association between ESG and stock performance disappears. These findings suggest that ESG performance was not a priced factor in European equity markets during the sample period. The initial associations observed in simpler regression models likely reflect omitted variable bias, as ESG scores appear to capture variation related to firm size. Once market capitalization and other firm-level controls are introduced, the ESG-return association becomes statistically insignificant. (Less)
Please use this url to cite or link to this publication:
author
Persson Vildir, Hedda LU and Stense, Nikitá LU
supervisor
organization
course
NEKH02 20251
year
type
M2 - Bachelor Degree
subject
keywords
ESG performance, sustainable investing, STOXX Europe 600, risk-adjusted return, panel data analysis, fixed effects regression, European equity markets, behavioral finance.
language
English
id
9207285
date added to LUP
2025-09-12 09:16:01
date last changed
2025-09-12 09:16:01
@misc{9207285,
  abstract     = {{This study examines the relationship between Environmental, Social, and Governance (ESG) performance and stock returns within the STOXX Europe 600 Index over the period 2019–2024. A balanced panel dataset was constructed by applying a frozen basket approach including 465 firms with continuous index membership and complete ESG data from Refinitiv Eikon.

The analysis evaluates whether ESG scores, treated as continuous variables and through quintile-based portfolios, are associated with abnormal returns by examining both within-firm and between-firm variation. Financial performance is also assessed using cumulative returns, CAPM-based beta and (Jensen´s) alpha, and risk-adjusted metrics including Sharpe and Treynor ratios.

The results show no consistent evidence of a significant relationship between ESG scores and financial performance, based on both regression analysis and risk-adjusted return metrics. Once firm-specific controls such as size, valuation, industry, and country are included, the association between ESG and stock performance disappears. These findings suggest that ESG performance was not a priced factor in European equity markets during the sample period. The initial associations observed in simpler regression models likely reflect omitted variable bias, as ESG scores appear to capture variation related to firm size. Once market capitalization and other firm-level controls are introduced, the ESG-return association becomes statistically insignificant.}},
  author       = {{Persson Vildir, Hedda and Stense, Nikitá}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Is ESG Financially (Ir)relevant?}},
  year         = {{2025}},
}