ESG Scores as Social Ethicality Motivators

Sammanfattning: Relating to the ongoing discussion surrounding criticism and support for ESG scores, the purpose of this paper anchors itself in providing comprehensive, empirical evidence regarding the responsiveness of ESG scores to firm actions. The different strategic choices of multinational firms, resulting from political and stakeholder pressure, were to either fully withdraw, suspend or continue operations in Russia in light of the Russia-Ukraine war. These actions were statistically analyzed in relation to changes in the firms’ social and governance ESG scores. The achieved aim and contribution of this thesis was therefore to empirically explore the appropriateness, validity and responsiveness of these scores in terms of being a measure for how well firms’ corporate actions address social- and governance-related issues in the social context of their operations. In this way, currently lacking statistically-backed criticism or support could be added to the current ESG debate. To answer the research question of how responsive ESG scores are to the social- and governance-related actions of firms, the research took a quantitative approach. This was done by analyzing the statistical relationship between the costs of the aforementioned divestment strategies as well as the categorical degree of divestment, and changes in event-relevant ESG scores. Multiple simple linear regressions and a contingency table were operationalized, respectively, in order to do so. Strong statistical evidence is citable towards clear criticism for the continued use of ESG scores as social ethicality motivators. A statistically significant, negative relationship was found between costs of full withdrawal and changes in social and governance scores. No relationship at all was found between the costs of withdrawal and changes in the community, human rights, and stakeholder engagement scores. ESG was also completely unresponsive in all score pillars and categories to firm decisions to suspend their operations or continue business as usual. In other words, firms were punished via ESG for acting in a way that adhered to stakeholder demands for full divestment, while those that did the bare minimum or nothing at all were not punished or responded to at all. These results therefore provide strong criticisms against the responsiveness and validity of ESG scores as accurate measures of CSR and thereby their ability to be social ethicality motivators. The key empirical contribution that this thesis therefore makes is to provide a geographically and industrially comprehensive statistical analysis of how and what ESG scores reward and respond to, whose results add robust, non-theoretical criticism for the use and appropriateness of the scores that has yet been lacking in the field.