Stock Market Reactions to Environmental Social and Governance-related Events: An Event Study of H&M Group

Amanda Laumann Jensen

Student thesis: Master thesis


H&M Group is one of the world’s largest retailers currently present on 74 markets and with eight portfolio brands. For more than a decade, H&M Group has focused on ESG engagement, for instance by using recycled materials in production and by working to improve living and working conditions in developing economies in which H&M Group suppliers are located. H&M Group publishes an ESG report each year in order to inform stakeholders of corporate ESG engagement. This thesis studies the stock market’s sensitivity to ESG announcements within H&M Group in order to determine to what extent H&M Group’s ESG engagement is valued by the stock market. Specifically, an event study of announcements related to new financial and ESG information related to H&M Group is conducted from 2012 to 2019. Announcements of financial information are included in the event study in order to provide a benchmark for stock market reactions to ESG information. The sample includes 9 negative ESG announcements, 52 positive ESG announcements and 74 financial announcements. The event study identifies significant movements in stock prices following announcements of both positive and negative ESG information. This result is in line with the stakeholder perspective which argues that companies must manage stakeholder relationships in order to maintain and improve corporate reputation as this is crucial in order to stay in business. Furthermore, the event study finds that stock market reactions to negative ESG information are more significant than reactions to positive ESG information. Research has identified social and environmental performance as important components of corporate reputation and corporate reputation as an important driver of corporate value (Waddock, 2008, Doh et al., 2010). Therefore, negative information on corporate ESG behavior may be damaging for corporate reputation which is damaging for future financial performance. As a consequence, stakeholder and consumer sentiment towards corporate ESG behavior may impact the significance levels of stock market reactions to positive and negative ESG announcements. Lastly, the event study finds that the stock market only reacts to financial announcements when dividend announcements are included. When excluding dividend announcements stock market reactions to financial information are insignificant. These results indicate that the stock market values ESG information higher than announcements on past accounting performance. Thereby, the event study indicates that the stock market values H&M Group’s ESG engagement and ESG reporting. As of May 2020, the world is affected by the global Covid-19 pandemic. This disruptive event is expected to have large implications on the economy and society. Thereby it will be interesting to observe how this pandemic will impact public and investor sentiment towards ESG.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2020
Number of pages92