ESG Scores and their impact on Norwegian companies

Abstract

Investors are increasingly looking to invest in businesses that have a strong focus on environmental, social and governance factors (ESG). This master thesis investigates whether there is a relationship between sustainability, firm value, firm profitability and cost of capital using ESG scores.

We observe that there is significant inconsistency across ESG score providers, which is consistent with research from rest of the world. For that reason, we have focused on collecting data from one ESG score provider, Thomson Reuters Refinitiv. The purpose of the study has been to examine any association between the ESG components, Tobin´s Q, ROA and WACC at OSEBX, with data retrieved from past seven years.

We have investigated whether the independent variable which is ESG score had any significant impact on the dependent variables. In order to carry forward this test we choose Tobin´s Q, ROA and WACC as our dependent variables. Further, we have conducted a linear regression analysis with help of STATA 17th as our main tool for this study.

Based on our analysis, it appears that ESG pillar scores separately vary whether they have an impact on the dependent variables, simultaneously the overall ESG score does not have any impact while testing the Tobin´s Q as a dependent variable, which indicated that there is sufficient evidence to reject the null hypothesis. Whereas we failed to reject the null hypothesis regarding testing whether ESG Scores have any impact on ROA and WACC. This indicates that data provides sufficient evidence to support the null hypothesis and the results are positively significant.