ESG Meets Fama French Portfolio Performance A Risk/Return study of the Norwegian markets

Abstract

By examining the research question: How does ESG score integration affect the performance and risk characteristics of portfolios constructed using Fama-French factor models in the Norwegian market. This thesis explores the integration of Environmental, Social, and Governance (ESG) scores into portfolio performance analysis using the Fama-French factor models in the Norwegian stock market. The study addresses how ESG score integration impacts the performance and risk characteristics of portfolios constructed based on the Oslo All Share Index (OSEAX). By constructing portfolios based on ESG scores and analyzing them through the Fama-French 3-factor and 5-factor models, plus an ESG factor (TMB), the findings reveal that portfolios with low ESG scores significantly outperform those with high ESG scores. These results suggest that low ESG scores can be associated with higher returns, highlighting a complex relationship and importance of ESG factors in investment strategies and offering insights for sustainable finance for the Norwegian stock market.