This study aims to examine whether superior Environmental, Social and Governance (ESG) performance can mitigate the adverse financial effects of inflation shocks across firms and countries. While prior research has explored ESG performance during crises, this paper focuses explicitly on sustained inflationary periods and tests ESG’s resilience-enhancing role using accounting-based metrics.
The analysis is based on a panel of 5,986 publicly listed firms across 54 countries from 2002 to 2024, combining ESG ratings with definitive and inflation data from the World Bank. Return on assets is used as the key performance indicator. Regression models include inflation thresholds and interaction terms to assess whether ESG modifies firm outcomes under high inflation conditions, with robustness checks using alternative inflation definitions (CPI, PPI, EPI).
The study finds that firms with higher ESG ratings exhibit significantly better financial performance under high inflation. This effect is consistent across industries and regions, though variations exist (e.g. Japan and some sectors). Results remain robust when using alternative inflation measures and thresholds, confirming the stability of the ESG-inflation interaction effect.
The study's potential limitation is the small number of high-inflation occurrences in the data. There is a good chance that further inflation shocks will be seen in the upcoming years, given the present global economic issues. This would make it possible to examine the advantages of ESG initiatives in the face of macroeconomic crises in more depth.
Policymakers in emerging markets should incentivize ESG adoption not only for sustainability but also for macroeconomic resilience. Firms operating in inflation-sensitive sectors can benefit from embedding ESG practices to stabilize returns, improve risk management and attract long-term capital under uncertain economic conditions.
The study offers fresh and significant implications for society, such as promoting ESG as a macroresilience tool, enhancing corporate accountability, supporting economic stability and reducing job losses during economic shocks, thereby improving public trust and social well-being.
Unlike previous studies that assess ESG performance during financial or health-related crises, this research uniquely focuses on chronic inflationary pressure and its intersection with ESG performance, providing new evidence of ESG’s role as a strategic intangible asset during macrolevel economic stress. The cross-country approach and accounting-based metrics contribute novel insights into ESG’s capacity to enhance financial resilience beyond market-based outcomes. By analyzing how ESG performance mitigates the effect of inflationary pressure on firm profitability, this study expands the focus of the ESG-resilience discussion from transient crisis occurrences to ongoing macroeconomic stress. This investigation provides empirical data on whether ESG capabilities aid organizations in maintaining operational performance when cost pressures increase by explicitly modeling the moderating influence of ESG in the relationship between inflation and firm profitability.
