ESG Ratings on Stock Performance – Empirical Results from Oslo Stock Exchange
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Abstract
In this thesis, we investigate the impact of Morningstar’s ESG ratings by Sustainalytics on thestock performance of companies listed on Oslo stock exchange. We construct portfolios based onESG ratings and analyze their performance using the standard asset pricing models, Capital AssetPricing Model (CAPM) and the Fama-French Three-Factor Model (FF3). Our data spans from2014-2024, covering a decade of stock performance within Oslo stock exchange. Our findingsreveal a nuanced and vague relationship between ESG ratings and stock performance. Our initialfour portfolios, classified as poor ESG ratings, good ESG ratings, extremely poor and extremelygood, respectively, all show insignificant alpha and beta values (on the 5% level). Due to the resultsand differences observed between these portfolios, a 5th portfolio was computed. This portfoliois comprised of stocks with ESG ratings regarded as “medium” by Morningstar. Interestingly,the 5th portfolio exhibits a superior and significant (on the 5% level) alpha value and a low betavalue. These results suggest that medium ESG-rated stocks might strike a balance between ESGconsiderations and financial performance, offering a favorable risk-return profile and potentiallyserve as a “sweet spot” for investors.