ESG and financial performance of firms: Nordic Evidence

Abstract

This dissertation includes three essays that focus on the relationship between sustainability, measured in terms of the environmental, social, and governance (ESG) scores and the financial performance of firms. The first essay considers the bi-directional relationship between firms’ ESG and financial performance. The study argues that ESG is a predictor as well as a consequence of corporate financial performance. In the second essay, the relevance of ESG performance in firms’ resilience during crises is studied using the COVID-19 pandemic as a case study with the difference in containment strategies in the Nordic countries as a good setting for identification. The last essay focuses on the role of ownership horizon on the ESG performance of firms. The study argues that firms with long-term orientation have higher ESG performance. This is based on the expectation that achieving higher ESG performance itself is a long-term project that would require owners with such long-term interests to invest in it.

The practical implications of this dissertation’s findings are significant for both companies and investors. By recognizing the bi-directional relationship between ESG practices and financial performance, companies can strategically prioritize sustainability initiatives to enhance their long-term viability and attractiveness to investors. The study’s focus on the relevance of ESG performance during crises, such as the COVID-19 pandemic, highlights the importance of resilience and adaptability in navigating turbulent times. In addition, the insight into the influence of ownership horizon on ESG performance suggests that fostering a long-term orientation among owners can promote sustainable business practices. Overall, these implications highlight the need for companies to integrate ESG considerations into their decision-making processes and for investors to incorporate ESG factors into their investment strategies to promote sustainable value creation and resilience.