ESG performance and firm-level risk

This thesis examines the relationship between Environmental, Social, and Governance (ESG) performance and firm-level risk among publicly listed companies in the Nordic countries. While prior research suggests that ESG may reduce firm risk, evidence for the Nordic region remains limited despite its high sustainability standards. Using panel data on 380 firms from Sweden, Denmark, Norway, and Finland over 2015–2024, the study examines whether ESG performance is associated with lower idiosyncratic or systematic market risk. The idiosyncratic volatility and market beta, for each firm, are estimated using the Fama–French three-factor model. Fixed-effects panel models and pooled OLS regressions relate these risk measures to aggregate ESG scores and their environmental, social, and governance pillars, controlling for firm size, leverage, profitability, and year- and sector-specific effects. The results show no statistically significant relationship between ESG performance and either risk measure in the Nordic context, whereas traditional firm characteristics, such as size and profitability, exhibit stronger associations with firm risk. However, when year effects are excluded, ESG is significantly related to idiosyncratic risk, suggesting that this association between ESG and idiosyncratic risk may vary over time.