ESG Scores and Stock Performance Across Regulatory Regimes : A Quantitative Analysis of ESG Scores, Stock Performance, and Regulatory Stringency in Scandinavian and Asian Countries

Background: As the interest in sustainable financing has increased significantly in recent years, the integration of ESG has become more widely used in investment strategies. ESG scores can be used as a tool for investors when making investment decisions and may offer both opportunities and risks for firms and investors. To address issues with climate change, lawmakers have implemented various sustainability regulations. However, the stringency and scope of these regulations differ across regions. While Scandinavian countries report under the EU’s broad and extensive regulations regarding ESG reporting, many countries in the Asian region do not have the same unified and stringent governance frameworks. Purpose: The study investigates the impact of ESG scores on stock performance, focusing on returns and volatility. The research compares Scandinavian and Asian countries and further explores how regional differences in regulatory stringency affect ESG scores, and in turn, how these scores affect stock performance. Method: This thesis uses a quantitative research approach, using correlation and quantile regression analyses to answer the research question. Additionally, test of normality and robustness tests were done to determine the suitability of the dataset for the investigation and statistical methods. Conclusion: The findings indicate that ESG scores do not have a consistent positive impact on stock performance across the two regions. In the regression models, higher ESG scores were associated with lower returns in Scandinavia, while the relationship resulted as non-significant in Asia. Volatility did not change in Scandinavia but was reduced in stable firms in Asia. The correlation analysis showed that ESG scores were negatively correlated with both returns and volatility in Scandinavia, but the relationship was non-significant in Asia. Additionally, regulatory stringency was positively associated with ESG scores in Asia. However, due to the lack of variation in Scandinavia, the insight into the relationship is limited.