ESG Ratings and Stock Market Performance: Evidence of a Shift in Investor Preferences during a Period of Economic Distress in Scandinavia

Sammanfattning: During the Covid-19 crisis, firms with high environmental, social, and governance (ESG) ratings traded within the Scandinavian markets had more significant pandemic-induced drops in stock returns than firms with low profiles in ESG. The difference was close to ten percentage points more severe for high-ESG compared to low-ESG firms. This evidence suggests that in a region with fundamentally high levels of ESG engagement, investors tend to ward off high-ESG firms when faced with a downturn in the real economy. We hence emphasize the need to recognize the unique effects of regions that deviate from a global trend and to extend the focus beyond financial capital when attempting to understand the determinants of firm-level performance during a crisis.