The Effect of Firm-Level ESG Practices on Macroeconomic Performance

University of Oxford | Working Paper No. 20-03

47 Pages Posted: 2 Jul 2020 Last revised: 17 Aug 2020

See all articles by Xiaoyan Zhou

Xiaoyan Zhou

University of Oxford-Smith School of Enterprise and the Environment

Ben Caldecott

University of Oxford - Smith School of Enterprise and the Environment

Elizabeth Harnett

University of Oxford - Smith School of Enterprise and the Environment

Kim Schumacher

Tokyo Institute of Technology - School of Environment and Society; University of Oxford - School of Geography and the Environment

Date Written: June 3, 2020

Abstract

This paper investigates whether the development and adoption of firm-level environmental, social and governance (ESG) practices affects national macroeconomic performance, and whether this differs between developed countries and emerging economies. Using dynamic panel techniques – generalised method-of-moments (GMM) estimators – we find that an increase of micro-ESG performance can result in the improvement of living standards as measured by GDP per capita. When we test this link by country type, we find that firm-level social performance in a country is positively associated with GDP per capita in both developed countries and emerging economies. As for the other two components of firm-level ESG measures, namely environmental and governance performance, we find that these affect macroeconomic performance in emerging economies, but that the effects remain insignificant in developed countries. While further research is needed, these results may be of particular interest to policymakers and central banks, as they suggest that encouraging the adoption of ESG practices at the firm-level could support macroeconomic performance.

Keywords: Firm-level ESG performance, Economic growth, GDP per capita

JEL Classification: G30

Suggested Citation

Zhou, Xiaoyan and Caldecott, Ben and Harnett, Elizabeth and Schumacher, Kim, The Effect of Firm-Level ESG Practices on Macroeconomic Performance (June 3, 2020). University of Oxford | Working Paper No. 20-03, Available at SSRN: https://ssrn.com/abstract=3618748 or http://dx.doi.org/10.2139/ssrn.3618748

Xiaoyan Zhou (Contact Author)

University of Oxford-Smith School of Enterprise and the Environment

South Parks Road
P.O. Box 242
Oxford, Oxfirdshire OX1 3QY
United Kingdom
7921513972 (Phone)
7921513972 (Fax)

Ben Caldecott

University of Oxford - Smith School of Enterprise and the Environment ( email )

United Kingdom

Elizabeth Harnett

University of Oxford - Smith School of Enterprise and the Environment

United Kingdom

Kim Schumacher

Tokyo Institute of Technology - School of Environment and Society ( email )

2-12-1 Ookayama, Meguro-ku
Tokyo, Tokyo-to 152-8550
Japan

HOME PAGE: http://bit.ly/2Dj8Y8S

University of Oxford - School of Geography and the Environment ( email )

Oxford University Centre for the Environment
South Parks Road
Oxford, OX1 3QY
United Kingdom

HOME PAGE: http://www.geog.ox.ac.uk/staff/kschumacher.html

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