Macro Uncertainty Impacts on ESG Performance and Carbon Emission Reduction Targets

Abstract

This study examines the impact of three macro uncertainty factors: economic policy uncertainty (EPU), political instability (PIS), and cultural uncertainty avoidance (UA), on corporate environmental, social and governance (ESG) performance and carbon emission reduction targets. Additionally, we examine whether these macro factors are affected by the profitability of the company. Using an unbalanced sample of companies located in the USA, China, and the UK during the period 2013–2020, results show that during times of economic uncertainty, companies are more likely to engage in ESG activities, including establishing emission reduction targets. Companies in countries with lower levels of political stability (PS) exhibit greater levels of social and environmental engagements, and companies operating in societies that tolerate risks, including the risk associated with climate change, are more likely to have better ESG performance and be committed to emission reduction targets. The results also suggest that profitable companies are more likely to deal with uncertain environments successfully, as they have the required resources to invest in ESG. The study suggests several practical implications for managers and policymakers.

The Role of GDP Growth in the ESG Approach at World Level

“…There is a positive relationship between higher ESG scores and GDP values in the MSCI ESG database for the period 2007-2017 [29]. The impact of macro-economic uncertainty on ESG model is negatively associated to GDPG in a set of companies in China, USA, and UK [30]. [31].…”

The Role of GDP Growth in the Esg Approach at World Level

“…There is a positive relationship between higher ESG scores and GDP values in the MSCI ESG database for the period 2007-2017 (Breedt et al, 2019). The impact of macro-economic uncertainty on ESG model is negatively associated to GDPG in a set of companies in China, USA, and UK (Alandejani & Al-Shaer, 2023).…”

The Determinants of CO2 Emissions in the Context of ESG Models at World Level

“…ESG funds invest in firms that have higher ESG scores even if ESG scores are not correlate with the firm performance in terms COE [14]. During periods of economic turmoil, companies seem more interested in applying ESG models targeting sustainable goals such as COE [15]. There is a positive relationship between the adoption of ESG models, the environmental-innovation and the reduction of COE for firms listed to the London Stock Exchange-LSE [16].…”