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ESG performance and firm-level risk

Holm, August LU and Pettersson, Astrid LU (2026) NEKH02 20252
Department of Economics
Abstract
This thesis examines the relationship between Environmental, Social, and Governance (ESG)
performance and firm-level risk among publicly listed companies in the Nordic countries. While
prior research suggests that ESG may reduce firm risk, evidence for the Nordic region remains
limited despite its high sustainability standards. Using panel data on 380 firms from Sweden,
Denmark, Norway, and Finland over 2015–2024, the study examines whether ESG performance
is associated with lower idiosyncratic or systematic market risk.
The idiosyncratic volatility and market beta, for each firm, are estimated using the Fama–French
three-factor model. Fixed-effects panel models and pooled OLS regressions relate these risk
measures to aggregate ESG... (More)
This thesis examines the relationship between Environmental, Social, and Governance (ESG)
performance and firm-level risk among publicly listed companies in the Nordic countries. While
prior research suggests that ESG may reduce firm risk, evidence for the Nordic region remains
limited despite its high sustainability standards. Using panel data on 380 firms from Sweden,
Denmark, Norway, and Finland over 2015–2024, the study examines whether ESG performance
is associated with lower idiosyncratic or systematic market risk.
The idiosyncratic volatility and market beta, for each firm, are estimated using the Fama–French
three-factor model. Fixed-effects panel models and pooled OLS regressions relate these risk
measures to aggregate ESG scores and their environmental, social, and governance pillars,
controlling for firm size, leverage, profitability, and year- and sector-specific effects.
The results show no statistically significant relationship between ESG performance and either risk
measure in the Nordic context, whereas traditional firm characteristics, such as size and
profitability, exhibit stronger associations with firm risk. However, when year effects are excluded,
ESG is significantly related to idiosyncratic risk, suggesting that this association between ESG and
idiosyncratic risk may vary over time. (Less)
Please use this url to cite or link to this publication:
author
Holm, August LU and Pettersson, Astrid LU
supervisor
organization
course
NEKH02 20252
year
type
M2 - Bachelor Degree
subject
keywords
ESG, Nordic region, Firm-level risk, Idiosyncratic volatility
language
English
id
9220730
date added to LUP
2026-02-04 08:22:01
date last changed
2026-02-04 08:22:01
@misc{9220730,
  abstract     = {{This thesis examines the relationship between Environmental, Social, and Governance (ESG)
performance and firm-level risk among publicly listed companies in the Nordic countries. While
prior research suggests that ESG may reduce firm risk, evidence for the Nordic region remains
limited despite its high sustainability standards. Using panel data on 380 firms from Sweden,
Denmark, Norway, and Finland over 2015–2024, the study examines whether ESG performance
is associated with lower idiosyncratic or systematic market risk.
The idiosyncratic volatility and market beta, for each firm, are estimated using the Fama–French
three-factor model. Fixed-effects panel models and pooled OLS regressions relate these risk
measures to aggregate ESG scores and their environmental, social, and governance pillars,
controlling for firm size, leverage, profitability, and year- and sector-specific effects.
The results show no statistically significant relationship between ESG performance and either risk
measure in the Nordic context, whereas traditional firm characteristics, such as size and
profitability, exhibit stronger associations with firm risk. However, when year effects are excluded,
ESG is significantly related to idiosyncratic risk, suggesting that this association between ESG and
idiosyncratic risk may vary over time.}},
  author       = {{Holm, August and Pettersson, Astrid}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{ESG performance and firm-level risk}},
  year         = {{2026}},
}