Value relevant ESG scores and superior performance : when is a high ESG score indicative of better financial performance?
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- Master Thesis 
Purpose - The objective of this thesis is to develop a methodology that will enable investors to differentiate between two types of companies: those with high performance on ESG issues that have the potential to significantly impact value, and those with high performance on ESG issues that do not have the potential to significantly impact value. Originality/value – The Ohlson model is used to calculate a variable based on the value relevance of a consensus ESG score, which allows us to divide companies into two groups: Companies in which ESG has an impact on value and companies in which ESG has no impact on value. Design/methodology/approach - To distinguish between companies that allocate resources to ESG issues that are not value relevant and companies that allocate resources to ESG issues that are value relevant, we use the interaction between the variable that divides the companies in our dataset into two groups and the level of the consensus ESG score. This interaction serves as the foundation for the development of two investment strategies, which are tested using two different empirical strategies, one of which represents the creation of actual portfolios applicable to an investor under realistic conditions. Findings – We find that an investment strategy based on taking a long position in companies with a high ESG score when ESG is value relevant and a short position in stocks with a high ESG score when ESG is not value relevant generates superior performance, as measured by the Sharpe ratio and the Fama French 5-factor alpha extended with the liquidity factor.