Unlocking economic insights: ESG integration, market dynamics and sustainable transitions

The growing integration of ESG considerations into financial investments raises critical questions about the implications of ESG mainstreaming for economic activities. Our study examines ESG equity investments and their evolving relationships with future economic trends. By utilising wavelet coherence techniques on datasets spanning from 2011 to 2023 across both emerging and developed markets, we uncover significant interconnections between ESG investments and predictive economic indicators across medium- and long-term horizons. Our findings reveal that ESG investments exhibit a positive (inverse) correlation with favourable (adverse) economic indicators, playing a lagging role in forecasting long-term economic activity. The findings also underscore substantial regional disparities in the interaction between ESG equities and predictive indicators. Notably, the coherence between ESG investments and energy-sustainability indicators is less consistent and pronounced in emerging markets compared to developed markets. Our study provides strategic insights into optimal portfolio strategies for investors and delivers valuable guidance for market regulators and policymakers.