Impact of Sovereign Macroeconomic Policy on Corporate Sustainable Performance

The results of this study show that the profitability of certain financial instruments and the fundamentals of certain macroeconomics in the observed countries have not been transformed into sustainable behavior at the corporate level.

In recent months, research on the topic of sustainable finance has been conducted as part of the study of “Rethinking Finance: Efforts for Sustainable Economic Development” and the Chair of the Education Committee. The study, entitled “ESG Performance at the Enterprise Level: Economic Situation and Impact of Sovereign Capital Flow,” was conducted by Bentley Tang, a student and chair research assistant at the MSc Sustainable Finance at Kedge Business School. Understand whether financial product flows and national macroeconomic policies affect corporate environmental, social and governance (ESG) performance.

Importance of state macroeconomic policies in corporate ESG performance

While many studies focus on ESG performance in fixed income or equities, few have aimed their research objectives at macroeconomic performance at the corporate and national levels. Several studies have investigated the relationship between a country’s economic system and its economic value according to a company’s ESG performance (ie, GDP or GDP per capita) and confirm that ESG is a signal of stability. .. But the role of the state in sustainability at the enterprise level, its macroeconomic policies, and the financial system are far from clear.

In particular, sustainability is not a traditional economic factor, so the intersection of sovereign economic and financial risk and sustainability risk (which shares both transition and physical risk) is a challenge. The mitigation of climate change and the growing importance of public demand for it has led to policy and regulatory changes aimed at promoting sustainable investment. As such, ESG and climate risk are themselves considerations for Sovereign and his company. Economists and investors are trying to identify the mechanisms that influence risk, growth and returns. However, working to mitigate climate change requires understanding how capital is being used and whether its use is economically efficient and sustainable.

A broad international range of studies measuring the impact of effective use of capital flows on corporate sustainability

Therefore, this study presents a historical analysis of macroeconomic conditions and some specific financial instruments to account for changes in a company’s ESG performance. Using a sample of more than 1,000 listed companies in eight developed, developing or emerging countries (US, UK, France, Germany, Japan, Mexico, India, Brazil), a total of more than 6,500 observations over a seven-year period. (2013-2019), studies seek to embody how a country’s capital flow and effective use of capital affect its sustainability performance. The methodology used was the ESG score of a company, such as economic performance (GDP growth), inflation rate, monetary policy responsiveness (reserve / import ratio), fiscal policy (ratio debt / GDP and primary balance / GDP). Cross with country-specific macroeconomic indicators. , Macroeconomic activity (current account / GDP ratio and trade openness) and profitability of financial instruments (price of F3 debt securities and F5 stocks).

Research contribution

The results generally show that the profitability of certain financial instruments and the fundamentals of certain macroeconomics in the observed countries have not been transformed into sustainable behavior at the corporate level. Economic growth, leverage and rising debt prices will significantly undermine ESG performance. On the other hand, retroactive monetary policy, sound finances (especially with proper taxation), and exchange dynamics in the stock market can significantly improve a company’s ESG performance. Based on these findings, there are even more country differences that impact ESG performance at the enterprise level. While economic growth in Brazil and the United States significantly impairs sustainability performance, India and Japan have a significant and positive impact on sustainability through GDP growth. Other findings show that monetary policy responses are largely important and positive for most countries, with the exception of Brazil and the United Kingdom. This study highlights the country’s ability to fund, manage and promote sustainable development activities and contributes to providing concrete elements of the impact of macroeconomic performance on corporate sustainability. I am.

In this research study, Kedge’s research assistant Bentley Tang, under the guidance of Professor Luis-Reyes-Ortiz, Professor of Kedge and Director of MSc Sustainable Finance, is Professor of Kedge and Chairman of Kedge / Candriam. Efforts for possible economic development “.It is available on the website kedge.edu..

Bentley Tang, a student of Kedge’s MSc Sustainable Finance, participated in Candriam / Kedge’s “Finance Reconsidered: Addressing Sustainable Economic Development” in July 2021 and worked on the theme of “ESG performance and sovereign capital flow” in a term-end internship. .. ‘the study. He is currently working as a data analyst at Asset Resolution, a subsidiary of 2 ° Investing Initiative France. AssetResolution maintains the world’s largest database of securities-matched physical assets covering key energy-related sectors (oil and gas, coal, electricity, automobiles). , Air, transportation, cement). Prior to joining Kedge, Bentley Tang received a Bachelor of Business Administration (BBA) from the Texas McCombs School of Business.

Kedge / Candriam’s “Finance Reconsidered: Addressing Sustainable Economic Development” chair focuses on sustainable financial themes (ESG and asset pricing / factor investment, the impact of international regulations on sustainable finance, macroeconomics and monetary policy). The purpose is to create a basic study every year. Impact, ESG data selection bias, etc.). It also aims to create key educational innovations (latest is the Impact Investing Challenge) that can be offered to university and business school students around the world as part of international competition.