Master Thesis - Are High ESG-rating companies performing better?

Student thesis: Master thesis (including HD thesis)

  • Alexander Kristensen Kruszelnicki
The purpose of this thesis is to investigate and observe ESG-investing and if ESG-rating on companies has an impact on financial performance and if ESG-rating companies are exposed to value and growth investing. Previous studies suggest different results of the relation between ESG-rating and financial performance, with both supportive and denying findings and the di-vergence of ESG-rating agencies.

The thesis tested the impact of ESG-ratings between a time-period of 1st January 2017 to 1st January 2022 by constructing portfolios representing either High or Low ESG-ratings the port-folios in the thesis is High- and Low ESG-rating portfolio, High- and Low Sector-based port-folios of, Consumer Non-Cyclicals, Finance, Technology, Healthcare, and Industrial and Val-ue- and Growth-portfolio based on the median P/E-ratio of the sectors. Further, each portfolio is estimated and compared based on the performance of annual average excess return, Sharpe-ratio, Sortino-ratio, and Alpha-value.

Furthermore, the thesis used Fama & French 5-factor model to determine if the High- and Low ESG-rating portfolio are exposed to the five-factors, and to determine the alpha-value of each portfolio constructed. The last analysis examined in the thesis is testing if the High- and Low ESG-rating portfolio is exposed to value- and growth-portfolio.

The thesis finds that Low ESG-rating portfolios tend to outperform High ESG-rating portfolios when comparing the measurement of excess return, Sharpe-ratio, and Sortino-ratio. The thesis found no evidence that suggests a statistically significant difference in returns on ESG-rating since both the High- and Low ESG-rating portfolio showed insignificant alpha-values. Further, the thesis found the growth-portfolio outperformed the value-portfolio and found significant evidence of growth having an impact on the High- and Low ESG-rating portfolio. The evidence found in the thesis show similar and opposite findings to previous research.
Publication date1 Jun 2022
Number of pages49
ID: 471794994