The valuation relevance of ESG score in the Nordic market - A study on the effect of ESG score on stock price and financial performance

Sammanfattning: This study investigates the relationship between ESG score and ROA and ESG score and stock price. Furthermore, we investigate whether there exists an ESG premium and if this premium is fundamentally established in the firm. Our panel data sample consists of 73 Nordic firms with data between the years of 2015 – 2022. The method used to examine the relationship between ESG score and stock price is a modified version of the Ohlson model (1995). To examine the relationship between ESG score and ROA we utilize a fixed effects model. We find a positive relationship between ESG score and stock price as well as a positive relationship between ESG score and ROA. We find support for the stakeholder theory as it indicates that investments in nonfinancial efforts are value creating. Furthermore, since both models have a positive relationship, we argue that ESG is not only a market phenomenon but rather also fundamentally established since it improves profitability.