How environment, social and governance scores impact company financial performance indicators: Evidence from Denmark

The aim of this chapter is to measure the effect of ESG scores on financial performance indicators while accounting on the effects of individual components assembling the measure of the ESG score (environmental, social and governance pillar scores). This empirical study includes a sample of companies listed on Danish stock market (Nasdaq OMX Copenhagen) for the period from 2010 – 2018. Using the dataset collected from Thompson Reuters Eikon database, this study conducts a panel data regression with the fixed effects to measure the impact of both the aggregated score, and the separate components that are used to compute the overall score, on two financial performance indicators (ROA and Tobin’s Q). The study finds that ESG scores have positive impact on Tobin’s Q and not on ROA, which may be the outcome of different directions of the effects that the separate components have on the two financial performance indicators.