| dc.description.abstract | In this thesis, we investigate the impact of Morningstar’s ESG ratings by Sustainalytics on the
stock performance of companies listed on Oslo stock exchange. We construct portfolios based on
ESG ratings and analyze their performance using the standard asset pricing models, Capital Asset
Pricing Model (CAPM) and the Fama-French Three-Factor Model (FF3). Our data spans from
2014-2024, covering a decade of stock performance within Oslo stock exchange. Our findings
reveal a nuanced and vague relationship between ESG ratings and stock performance. Our initial
four portfolios, classified as poor ESG ratings, good ESG ratings, extremely poor and extremely
good, respectively, all show insignificant alpha and beta values (on the 5% level). Due to the results
and differences observed between these portfolios, a 5th portfolio was computed. This portfolio
is 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 beta
value. These results suggest that medium ESG-rated stocks might strike a balance between ESG
considerations and financial performance, offering a favorable risk-return profile and potentially
serve as a “sweet spot” for investors. | |