ESG Scores, Performance Characteristics and Risk : Advantageous Corporate Decisions in European Markets

Sammanfattning: Corporate sustainability has been discussed for a long time as it affects the entire world. The true definition of sustainability came to be established with the Brundtland report in 1987. Paraphrased the report stated that sustainability is being able to meet the needs of today without sacrificing the future for succeeding generations. Ever since then, corporate sustainability has been translated into numerical data which displays corporate traits connected to the three pillars environmental, social, and governance. These three pillars can be combined into one overall ESG score. Numerous research has been written on the topic of ESG and several revolve around its relation to performance characteristics and risk management. The purpose of this master thesis is to bring additional evidence to determine if investors view sustainable investments in the realm of environmental, social and governance as advantageous and which has the greatest effect on investor views. Following the relation between corporate ESG investments and risk is researched to the overall ESG score initially, followed by the three separate ESG pillars. The purpose was narrowed down to four research questions. The research will be based on the years 2016- 2022. To be able to answer these questions a literature review is created on relevant topics and a theoretical framework is presented which allows for the numerical data to be inserted into a contextualization. The main theories used are Shareholder theory and Stakeholder theory. This master thesis is a deductive, quantitative research study with a focus on objectivity. It was found that buyers view ESG investments as advantageous when researching the overall ESG score. The three pillars did not however display any separate advantageous traits. ESG score has a positive relation to risk which might indicate that ESG investments increase the systematic risk. When analyzed separately the environmental and governance pillar investments increased systematic risk while social pillar investments had a risk managing effect.