ESG & FINANCIAL RESILIENCE : An Empirical Analysis of Scandinavian Firms During the Covid-19 Crisis

Sustainability has received increased importance over the recent years, driven both by regulatory pressures and expectations from society. ESG has opened doors to compare companies' sustainability efforts against each other. The existing literature on the relationship between ESG and financial resilience has shown divided results. The Scandinavian countries Sweden, Norway and Denmark are among the top five most sustainable countries in the world ranked by ESG scores. The purpose of this study was to investigate if ESG has a financial resilience effect on firms during the Covid-19 crisis. The study focused on the two industries, Consumer and Industrials, with a secondary purpose to examine if the relationship between ESG and financial resilience differs between the industries. The study analysed data from 108 firms from the Eikon database. Financial resilience was evaluated using rolling 20-day stock price volatility and Cumulative Abnormal Returns (CAR). CAR was measured in three key periods, Period 1 (February-April 2020) the initial shock of Covid-19, Period 2 (June-August 2020) initial stabilization phase and Period 3 (February-April 2021) vaccination campaigns. Volatility captured a broader period from the end of January 2020 to April 2021. Financial resilience was not expected to be completely explained by ESG; therefore, several control variables were included in the model, in accordance with variables in prior studies. The relationship between ESG and financial resilience was examined using ordinary least squares regressions. In addition, regression analysis was also performed to examine if the relationship was different between the industries. The results of the study showed insignificant relationships between ESG and financial resilience in both measurements of financial resilience and across all periods. The results also found that the ESG-financial resilience relationship did not significantly differ between industries. The results suggest that ESG may not provide companies with a resilience effect during the Covid-19 crisis. These findings align more closely with Shareholder Theory, suggesting that ESG investments may not enhance financial resilience and could divert resources from core business activities. This contrasts with Stakeholder and Investor Preference Theories, which suggests that ESG provides stronger stakeholder relations and investor loyalty, potentially enhancing resilience. The findings contribute to the growing literature on ESG and financial resilience, and bring new perspectives in the Scandinavian and Covid-19 context that can be relevant for investors, policymakers and for people in decision making positions in corporations.