The eﬀect of corporate sustainability on stock performance : an empirical comparison between European stocks with good and bad ESG performance
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- Master Thesis 
This thesis investigates the eﬀect of corporate sustainability on ﬁnancial performance in Europe during the period 2005-2017. We examine whether companies with good ESG performance perform better in the stock market than companies with bad ESG performance, based on Thomson Reuters ESG Scores. We are computing the alphas of a long-short zero investment strategy, which is long a portfolio comprised of companies with high ESG scores and short a portfolio comprised of companies with low ESG scores. By applying Fama-French three-factor, four-factor (Carhart) and ﬁve-factor model with and without momentum to account for potential diﬀerences in risk exposure between the portfolios, we ﬁnd that the latter signiﬁcantly outperforms the former. The diﬀerences however, disappear as we account for ESG controversies, which are the company´s involvement in media covered incidents related to ESG. Due to diﬀerent results associated with the diﬀerent ESG measures, a clear conclusion can hardly be made. What is certain however, is that we do not see a positive relationship between ESG and stock performance in Europe, using Thomson Reuters ESG Scores.