Oxford academics find link between company ESG performance and GDP

Newly-published academic research concludes that ESG adoption could stimulate economic growth

Improvements in corporate ESG performance may increase a country’s GDP, or the monetary value of goods and services it produces overall, according to new research – although the effects can vary across developed and emerging markets.

Academic research published today by the University of Oxford’s Smith School of Enterprise and the Environment has found a significant, positive relationship between firm-level ESG performance and national “living standards”, as measured by GDP per capita.

But taken individually, the effects of ESG components on national output were not equal, with performance on the Social criteria strongly correlating with GDP per capita globally, while Environmental and Governance performance was found to significantly influence output only in the emerging markets.

The research – based on ESG scores for 6,500 companies globally between 2002 and 2017, supplied by Thomson Reuters – was authored by Oxford academics Ben Caldecott, Xiaoyan Zhou and Elizabeth Harnett, together with former colleague Kim Schumacher, who now teaches sustainable finance at the Tokyo Institute of Technology.

The authors said that their conclusions “refute the notion that active integration of environmental, social, or governance policies into corporate decision-making will lower GDP”, and suggested directing post-pandemic spending to support the adoption of ESG policies at firm-level as a way to stimulate economic growth.

The findings of the research, which is billed as “the first empirical study” of its kind, corroborates existing literature such as a 2018 fixed income study by Franklin Templeton that similarly established a positive link between ESG and GDP per capita, noting an exponential relationship in which “the payoff of stronger ESG performance on income [GDP per capita] rises as scores increase”.

The study comes as policymakers are increasingly turning their attention to ESG, with the EU, UK, Canada, Australia, Germany, Japan, Hong Kong, Philippines and Malaysia among those who have outlined or are currently developing strategies on sustainable finance. Other jurisdictions which have yet to announce policies on the topic, notably the US and Indonesia, have faced pressure to do so.