ABSTRACT This study investigates the association between ESG performance and firm market value in the Scandinavian context, which is characterized by relatively mature sustainability institutions. Focusing on publicly listed firms in Scandinavia (Denmark, Norway, and Sweden) over the period 2011–2023, the analysis employs panel data comprising 2223 firm‐year observations and fixed‐effects regression models to examine the effects of ESG on firm market value. Given the institutional maturity of Scandinavian sustainability systems, limited evidence exists on whether ESG remains a value‐relevant strategic differentiator and through which financial channels it affects firm market value. Contrary to conventional expectations, the findings reveal a statistically significant negative association between ESG performance and firm market value, measured by Tobin's Q ratio. However, ESG performance is positively related to profitability, and mediation analysis confirms that profitability partially transmits ESG's influence on firm value. No mediating effect is observed through operational efficiency. These results suggest that in mature sustainability regimes where ESG norms are deeply embedded, ESG performance may cease to operate as a competitive differentiator and instead function as a strategic hygiene factor, drawing on Herzberg's Two‐Factor Theory, in which hygiene factors are necessary baseline conditions rather than sources of differentiation. The study contributes to strategy and sustainability research by showing that the ESG–firm market value relationship may vary across contexts and by highlighting the importance of aligning sustainability initiatives with core value creation mechanisms in the Scandinavian setting.
Dsouza et al. (Thu,) studied this question.