Norges Bank Investment Management in relation to ESG and Financial Performance : An empirical analysis on how companies part of the Norwegian Government Pension Fund Global perform on ESG relative to the rest of the market, and how ESG relates to financial performance, both at a company level and for the fund as a whole.

Abstract

This thesis aims to analyze how the Norwegian Government Pension Fund Global, managed by Norges Bank Investment Management’s (NBIM), performs on environmental, social, and governance (ESG), and what financial implications this has, both at a company level and for the fund as a whole. At a company level, we examine how the fund’s ownership share relates to ESG score and the relationship between ESG and financial performance metrics regarding profitability, liquidity, and leverage. We use a fixed effects regression model shedding light on possible differences between the fund’s investee companies and other companies and look at mean ESG scores and returns through descriptive analysis. The analysis further includes comparing the ESG scores and returns of three constructed portfolios: One with the fund’s investee companies, one with non-investee companies, and one constituting the whole sample. Finally, we apply the methodologies of Fama-French three-factor, four-factor (Carhart), and five-factor, with and without momentum, including an additional ESG factor to examine how ESG relates to the fund’s returns. Our findings indicate that companies part of Norway’s Government Pension Fund Global perform stronger on ESG and worse in terms of return relative to non-investee companies, that the relationship between a company’s financial metrics and the ESG score differs between these two company groups, and that more exposure to companies with high ESG historically has positively impacted the fund’s financial performance.