The Influence of Environmental, Social and Governance Pillars on Physical Investment. A Study From China

Abstract

The present study explores the impact of environmental, social and governance aspects (ESG) on physical investment of China for the period of 2014-2023. The World Governance Indicators (WGI) and Refinitiv DataStream are the sources of the data. This research extends to the existing body of literature in the following manner. This research examines the impact of combine ESG score as well as the individual factors of environment, social, and governance on physical investment. Furthermore, the researcher used proxy of Fixed asset to compute the dependent variable. Moreover, this research used country-level governance factor as a measure, rather than corporate-level governance. Additionally, the researcher observes the impact of environmental, social, and governance (ESG) factors on physical investment by using a sophisticated and robust panel data model known as the two-step dynamic generalized method of moments (GMM). The study's findings indicate significant and positive association amongst the combined ESG component and physical investment. The impact of individual element of environment on physical investment is positive. Specifically, the social factor is favorably correlated with physical investment, which is measured by fixed assets. The findings indicate that the governance factor has a negative correlation with fixed assets. Our findings confirm the main hypothesis that ESG provides a more accurate description of China's economic patterns in terms of physical investment.