The Overlooked S in ESG : A quantitative study on social sustainability and stock performance

Sammanfattning

The environmental pillar of ESG has attracted the most attention from both academic research and investors, while the social pillar remains comparatively overlooked. Composite ESG scores can mask the individual contributions of each pillar, and the few studies that isolate social sustainability produce mixed and context-dependent results. This study examines whether disaggregated social sustainability metrics generate abnormal stock returns on Nasdaq Stockholm. Using 25 individual social metrics scored 0-100 from LSEG Workspace, firms are sorted into tercile portfolios based on industry-normalised Relative Social Scores and held from July 2020 to June 2025. Portfolio returns are value-weighted and regressed on a six-factor Fama-French model including momentum, with all factors constructed from the Swedish market. The results show no statistically significant abnormal returns associated with social sustainability. None of the 25 long-short (T3-T1) alphas is significant at the 5% level, and none of the 24 GRS tests rejects the null hypothesis that tercile alphas are jointly zero. Only 3 of 75 individual tercile alphas are significant, consistent with chance. These findings hold across all four social subcategories: workforce, human rights, community, and product responsibility. The results are consistent with the semi-strong form of the efficient market hypothesis and align with prior research showing that the employee satisfaction channel is attenuated in rigid labour markets such as Sweden. The study contributes countryspecific, metric-level evidence to a literature dominated by composite scores and U.S. data, though the short observation period limits the statistical power of the analysis.