Yi-Ting Peng, Tsangyao Chang, Omid Ranjbar
Environment, Social, and Governance (ESG) factors are increasingly embedded in firms’ investment decisions, and the uncertainties surrounding them have significant consequences. This research examines the persistence of ESG-related uncertainties and their spillover across the G7 countries, which, to our best knowledge, is one of the first empirical analyses in the literature. To achieve these objectives, we first use the ESG-related uncertainty index (ESGUI), which is calculated from the frequency of ESG-related keywords in reports from the Economist Intelligence Unit. Second, we assess the persistence of ESG-related uncertainty by estimating an augmented Dickey-Fuller regression model using nonparametric reflection and indirect inference estimators. Third, we apply the VAR method within a network topology to evaluate cross-country spillovers of uncertainties. Our findings show that (i) G7 ESGUIs exhibit long-memory properties over recent years, but (ii) spillovers of these uncertainties have declined, suggesting countries should prioritize domestic policies over international instabilities.