ESG Performance and Economic Growth in Europe

Abstract

This study evaluates environmental, social, and governance (ESG) performance at the country level as well as the relationship between this factor and economic growth by reference to a large sample of European countries over the period 2011–2020. As the measurement of ESG performance is an emerging concept, we consider a range of indicators that can be used to evaluate this factor on the basis of alternative methodologies, thus allowing us to check the robustness of the results. This approach reveals that countries that joined the European Union (EU) in 2004 or later exhibited lower levels of ESG performance than did countries in Western Europe; however, the decisive factors in this context are social and governance issues rather than environmental issues. These indications are robust across various settings. Further results reveal the existence of Granger causality between ESG performance and economic growth; however, ESG performance is revealed to impact economic growth only in the middle to long term.