ESG News and Stock Market Reactions : Insights from Oslo Stock Exchange

2022

awareness of firms’ ESG performance, and the amounts invested in accordance with

ESG criteria, have increased substantially in recent years. This thesis examines how the

Norwegian stock market reacts to announcements of negative ESG news. We collect data on

news events for the period 2008-2020 and use a multi-method research design to investigate

( 1) how stock prices are affected by announcements of negative ESG news, (2) whether market

reactions are different for more severe ESG news, and (3) whether market reactions have

changed over time. We contribute to the existing literature by examining how reactions differ

for each ESG pillar and for different levels of severity. This gives insight into which types of

ESG news investors are most sensitive towards, and how the graveness of the news affects

these reactions.

We find causal evidence of a positive market reaction towards firms experiencing negative

news concerning governance issues compared to firms that have no news in the overall event

window. Further, we find causal evidence of positive market reactions to environmental and

governance news, as well as to ESG news in general, at certain days surrounding the reported

event date. We argue that these results can be attributed to investors’ beliefs that the cost of

ESG performance outweighs the benefits. Moreover, we find that market reactions towards

severe ESG news are generally not more significant than reactions to less severe events.

Finally, we find that market reactions have not changed significantly over time. These findings

show that the Norwegian stock market values ESG news of all severity equally, and that the

impact of ESG news has been indistinguishable over the last twelve years.