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Impact of economic risk on sovereign environmental, social, and governance performance: global evidence

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  • Liu, Jiawei
  • Shi, Yaobo
  • Yang, Shenghao

Abstract

Economic risk is increasingly regarded as an important factor in shaping national development trajectories, which has implications for domestic economic performance, governance, and sustainability outcomes. Using a panel dataset of 94 countries and regions spanning 1990–2020, this study empirically investigates the relationship between national economic risk and sovereign environmental, social, and governance (ESG) performance. Results indicate that elevated economic risk is significantly associated with a deterioration in ESG outcomes, including low environmental sustainability, social equity, and governance effectiveness. Furthermore, economic risk contributes to ESG deterioration through weakened foreign direct investment, corruption, and decreased fiscal capacity channels. These mechanisms emphasize the multifaceted nature of how macroeconomic instability hinders a country’s ability to pursue sustainable development goals. In conclusion, political stability and technological innovation can effectively mitigate the adverse impact of economic risk on ESG, with economic growth risk being the primary driver. Political stability strengthens institutional resilience and ensures the continuity of ESG policies, whereas technological innovation improves resource efficiency and promotes long-term sustainability efforts. These conclusions clarify how institutional and investment pathways propagate economic volatility, thereby filling a gap in the existing risk analysis and sustainability literature focusing on a macro-institutional perspective.

Suggested Citation

  • Liu, Jiawei & Shi, Yaobo & Yang, Shenghao, 2025. "Impact of economic risk on sovereign environmental, social, and governance performance: global evidence," Finance Research Letters, Elsevier, vol. 86(PA).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pa:s1544612325015983
    DOI: 10.1016/j.frl.2025.108344
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    References listed on IDEAS

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