ESG Risk Spillover Between Peers

Abstract

We investigate how environmental, social, and governance (ESG) risk can spread between peers and its impact on long-term firm performance. Using data across six geographically diverse countries over a fourteen-year period, we find a significant spillover of ESG risks among multinational firms, which fails to yield a meaningful impact on the performance of affected firms. These findings place a spotlight on a critical gap in ESG risk management and echo an urgent signal for policy intervention, aligning with the United Nations’ faltering Sustainable Development Goals for 2030. This work is a clarion call for immediate academic and practical action in a world teetering on the brink of unsustainable practices. Our findings suggest that market-based mechanisms alone may be insufficient to discipline ESG risk, highlighting a potential role for regulatory oversight and policy attention.