The Financial Cost of Sustainable Investing in the Nordic Region

Abstract

This master thesis investigates whether there are financial costs associated with sustainable investing with a focus on the Nordic stock market. We apply two different models to test our hypotheses. Firstly, inspired by Hong & Kacperczyk (2009), we estimate whether “sin” stocks generate abnormal returns. Overall, we find mixed evidence on investors paying a financial cost from negatively screening “sin” stocks. For both Sweden and Finland, we find excess returns associated with “sin” stocks. Further, we investigate the relationship between sustainability ratings, specifically ESG Ratings, and riskadjusted returns. We do not detect a significant relationship between superior ESG Ratings and superior risk-adjusted returns. Consistent with existing literature, we present mixed evidence on whether sustainable investing implies financial costs.