Negative ESG Screening and Investment Returns : A Study of the Norwegian Oil Fund and Excluded Stocks

This thesis investigates whether there is a difference in stock returns for the Norwegian Oil Fund and the companies they exclude from their investment universe due to breaches of their ethical guidelines between 2006 and 2022. We analyze the returns from the excluded companies and the Oil Fund with the Fama-French five-factor model and split the excluded stocks into sub-portfolios to investigate if there is a difference in returns for sectors, markets and reason for exclusion. In addition to previous work, we also investigate if there is a correlation between the yearly returns and the ESG score for the excluded companies and the 100 largest companies in the Oil Fund measured by investment size. In line with previous research, our findings suggest that the excluded companies have outperformed the Oil Fund between 2006 and 2022. Moreover, eight out of nine sub-portfolios deliver excessive returns compared to the Oil Fund. We find that ESG scores and yearly returns are positively correlated for the excluded companies and negatively correlated for the 100 largest companies in the Oil Fund.nhhma