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How Trade Policy Uncertainty Affects ESG Investment Flows: Time-Series Analysis Using IMF and Sustainalytics Data

Author

Listed:
  • Najmi Kamariah

    (Hasanuddin University)

  • Abdul Rahman Kadir

    (Hasanuddin University)

  • Nuraeni Sayuti

    (Hasanuddin University)

  • Nur Rezky Amaliah

    (Hasanuddin University)

Abstract

This study investigates the impact of trade policy uncertainty (TPU) on Environmental, Social, and Governance (ESG) investment flows using a dynamic panel data model and monthly data from 15 major economies between 2010 and 2023. Drawing on Real Options Theory and Institutional Theory, we hypothesize that rising TPU negatively affects ESG investments, particularly in trade-integrated markets and trade-sensitive sectors. We further posit an asymmetric investor response, with rapid outflows during uncertainty spikes but slow recovery. Employing System GMM estimation and IMF’s TPU index, we find robust evidence that a one-standard-deviation increase in TPU reduces monthly ESG fund inflows by USD 1.42 billion. This effect is stronger in economies with higher trade openness and funds exposed to trade-dependent ESG sectors. Moreover, analysis of positive and negative TPU changes reveals a significant hysteresis effect, indicating that ESG investors respond swiftly to uncertainty shocks but cautiously to subsequent stabilization. These findings underscore the vulnerability of sustainable finance to trade policy shocks and highlight the need for policy coordination to build resilient ESG investment frameworks.

Suggested Citation

  • Najmi Kamariah & Abdul Rahman Kadir & Nuraeni Sayuti & Nur Rezky Amaliah, 2026. "How Trade Policy Uncertainty Affects ESG Investment Flows: Time-Series Analysis Using IMF and Sustainalytics Data," Advances in Economics, Business and Management Research,, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6239-709-5_150
    DOI: 10.2991/978-94-6239-709-5_150
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