The Role of ESG Performance in Times of Crises: Evidence from the COVID-19 Outbreak in Scandinavia

Abstract

This thesis aims to investigate how firm engagement in ESG activities influence market value in the context of the COVID-19 outbreak. Drawing upon the theoretical frameworks of the stakeholder theory, the resourcebased view and moral capital, this thesis contributes to the existing literature by exploring the relationship between CSP and CFP through an examination of Scandinavian firms. Building on a sample of 217 ESGscored firms from Denmark, Norway and Sweden, this study applies the event study methodology to assess the potential market value loss following the outbreak of COVID-19 in this region. The findings reveal statistically significant negative abnormal returns across different time horizons around the outbreak. Subsequently, through a regression analysis across two different time periods, the thesis investigates the potential insurance effect of aggregated and distinct ESG activities on the observed abnormal returns. Using ESG scores from the Refinitiv Eikon database, the findings indicate a positive relationship between all ESG variables and abnormal returns. However statistical significance is observed solely for the aggregated ESG score as well as for the social and governance pillar, immediately after the outbreak, but not as the crisis unfolded. Consequently, engagement in ESG activities, specifically through social and governance practices, has the potential to enhance firms’ ability to withstand immediate market value loss in the context of a systemic crisis, as exemplified by the COVID-19 crisis. Lastly, the findings hold significance for future research aimed at achieving consensus in the field of study related to the effectiveness of ESG performance as a form of insurance against market value loss due to crises caused by external events. Additionally, they provide valuable insights into the risk mitigation potential of distinct ESG activities for both managers and investors.