Does ESG Predict Business Failure in Brazil? An Application of Machine Learning Techniques

Abstract

The aim of this study is to explore the influence of environmental, social, and governance (ESG) factors on business failure in Brazil by employing advanced machine learning techniques. We collected data from 235 companies and conducted principal component analysis (PCA) on 40 variables already used in the bankruptcy failure literature, resulting in the formation of seven variables that predict business failure. The results indicate that ESG factors significantly predict business failure in Brazil. This study has implications for investors, policymakers, and business leaders, offering a more precise tool for risk assessment and strategic decision-making.