International Journal of Sustainable Economy (22 papers in press)

Regular Issues

• The nonlinear impact of ESG on firm default risk: evidence from Southeast Asia’s firms  
  by Anh Nguyen Thi Truc, Le Thanh Hoa  
  Abstract: This study investigates the impact of environmental, social, and governance (ESG) performance on firm default risk, utilising a sample of 147 Southeast Asian firms from 2007 to 2022. We estimate the research model using the generalised least squares (GLS) approach. Our findings reveal a nonlinear relationship between ESG performance and default risk. Specifically, before reaching the ESG score threshold of 57.12, an increase in ESG is associated with a rise in default risk; beyond this threshold, higher ESG scores correspond to a reduction in firm default risk. Additionally, our analysis indicates that after the 2015 Paris Agreement, the importance of ESG factors in reducing default risk has become more pronounced, especially for SMEs. The U-shaped relationship between ESG and firm default risk is attributed to the firm’s market value channel. Our results underscore the significance of effective ESG investment for enhancing financial stability, particularly in the context of evolving regulatory and market environments.
  Keywords: ESG; default risk; Southeast Asia; inverted U-shaped; SME; The 2015 Paris Agreement.
  DOI: 10.1504/IJSE.2025.10066818
   
  
• Macroeconomic determinants of unemployment in ECOWAS countries  
  by Peterson K. Ozili 
  Abstract: Unemployment is a major issue in ECOWAS countries and its determinants are not well-known. We investigate the macroeconomic determinants of unemployment in ECOWAS countries using data from 1993 to 2021. The data were analysed using the panel fixed effect and random effect regression methods. It was found that real GDP growth and central bank asset to GDP ratio are significant macroeconomic determinants of unemployment while inflation rate and domestic private credit have an insignificant effect on unemployment in ECOWAS countries. It was also found that higher domestic private credit significantly decreases unemployment during periods of economic expansion while periods of deflation decrease the rate of unemployment in ECOWAS countries. Positive economic growth is associated with low unemployment in ECOWAS countries.
  Keywords: unemployment; economic growth; ECOWAS; real GDP growth; central bank; inflation; West Africa; domestic credit to private sector.
  DOI: 10.1504/IJSE.2025.10067131
   
  
• Climate risk, sustainability, and financial performance: insights from the OECD banking sector  
  by Soumaya Maztoul, Rim Oueglissi 
  Abstract: This study investigates the relationship between banks’ environmental, social, and governance (ESG) performance and their financial profitability in the context of climate risks. Using a dataset of 146 OECD banks over the period 2009-2019, we explore whether good ESG performance acts as a buffer against climate risks, thereby enhancing profitability. Our feasible generalised least squares (FGLS) estimates reveal that while climate risks adversely affect bank performance, higher ESG scores significantly buffer this negative effect. Notably, environmental and social factors are particularly crucial in reducing climate risk’s negative impact. These findings, robust across various empirical specifications, provide crucial insights for policymakers and bank executives, highlighting the importance of integrating ESG criteria into banks’ risk management strategies to bolster resilience against climate-induced financial disruptions. Furthermore, it contributes to the growing literature on sustainable finance and climate risk management.
  Keywords: climate risk; sustainability; bank performance; environmental; social; and governance; ESG; feasible generalised least squares; FGLS.
  DOI: 10.1504/IJSE.2025.10068214
   
  
• Exploring the entrepreneurial outreach and financial performance of microfinance institutions as hybrid organisations  
  by Atthaphon Mumi, Sujinda Popaitoon, Tudsuda Imsuwan, Pajaree Ackaradejruangsri, Sirirat Rattanapituk, Pijak Pakhunwanich 
  Abstract: Microfinance institutions (MFIs) are established to offer financial services to individuals who lack access to formal loans. Previous research has discussed the hybrid nature of MFIs, which emphasizes both financial performance and social impact. However, limited studies have specifically focused on the dual objectives of MFIs concerning entrepreneurial outreach. In this study, we analyzed data from 1,182 MFIs of 122 countries spanning almost 20 years to provide empirical evidence supporting the role of hybrid entities in promoting entrepreneurial outreach and financial performance. Our findings reveal a positive relationship between small and medium-sized enterprises (SMEs) outreach and financial performance, indicating that MFIs that actively engage with SMEs achieve better financial outcomes. Conversely, we observe a negative impact of micro-entrepreneur outreach on financial performance. The implications of our research contribute to understanding the role of MFIs in fostering entrepreneurship and highlight the challenges associated with achieving both financial and social objectives.
  Keywords: microfinance institutions; entrepreneurial outreach; social performance; financial performance; SMEs; micro-entrepreneurs.
  DOI: 10.1504/IJSE.2025.10068547
   
  
• The impact of common financial ratios on market value ratios with the moderation of ESG pillar scores: an empirical analysis of emerging market corporations  
  by Süleyman Torasan, Huseyin Ocal, Anton Abdulbasah Kamil 
  Abstract: This study aims to provide empirical insights into how current (CR), asset turnover (AT), total debt to total asset (TD/TA), and return on equity (ROE) ratios for companies impact price-to-earnings (P/E), price-to-book (P/B), and dividend payout ratios (DIV). ESG pillar scores are used as moderators. The fiscal year-end data of thirty-one non-financial companies from eleven MSCI Emerging Markets Index EMEA countries used between December 31, 2015, and December 31, 2022, have been obtained from the Bloomberg database. The Moderated Panel Data Regression model is employed in the analysis. We have observed that the ESG pillar scores moderate the relationship between CR, ROE, TD/TA ratios, and market value ratios for corporations. We recommend that portfolio managers follow ESG pillar score improvements closely to predict the market value ratios of corporations in emerging markets.
  Keywords: ESG; financial ratios; price-to-earning ratio; P/E; price-to-book ratio; P/B; dividend payout ratio; DIV; portfolio investment; EMEA region.
  DOI: 10.1504/IJSE.2026.10069945
   
  
• Interconnectedness and portfolio optimisation across global ESG stocks  
  by Ishwar Sharma, Bhawana Verma, Chanchal Saini, Bharti Verma 
  Abstract: This study investigates the connections between global ESG stocks using the TVP VAR extended joint connectedness technique. It employs multivariate portfolio construction methods to determine optimal portfolio weights and evaluates these portfolios using the Sharpe ratio. Analyzing daily data from November 2014 to November 2024 shows that interconnectedness surged during key events such as the Paris Agreement, the COVID-19 pandemic, and the Russia-Ukraine war, with the highest peak during the COVID period. The study suggests that diversifying investments exclusively across emerging markets and a combination of developed and emerging markets may offer greater diversification opportunities than investing only in developed markets. To achieve a significant reduction in volatility and an increase in cumulative returns, it is recommended to allocate a substantial portion in the UK for a composite developed and emerging market portfolio, in India for an emerging market portfolio, and in Japan for a developed market portfolio.
  Keywords: connectedness; diversification; developed markets; emerging markets; ESG stocks.
  DOI: 10.1504/IJSE.2026.10069962
   
  
• R&D and IT investments powering MSME performance for Indian industrial transformation  
  by Barkha Dhingra, Tanu Kathuria, Ruhee Mittal, Mahender Kumar 
  Abstract: MSMEs are integral to India's economy, driving economic and social development through industrial output, job creation, exports, and fostering entrepreneurship. This study examines their performance by integrating Research and Development (R&D) and Information Technology (IT) into their business environment, aiming to boost revenue, cut costs, and improve customer engagement through e-business. While existing research often treats micro, small, and medium enterprises as a homogeneous group, this study distinguishes their performance by analysing the specific impacts of key determinants on each segment. This study employs panel data regression to examine the influence of IT and R&D intensity on performance. Results reveal the nuanced relationship between ROA and various factors, highlighting that the technology and innovation positively influence performance, but emphasising the need for tailored industry-specific initiatives. These findings offer valuable insights for policymakers, business leaders, and researchers, facilitating informed decisions on technology investment and fostering innovation guided by Resource-Based View (RBV).
  Keywords: R&D intensity; IT intensity; capital intensity; panel data; micro; small; and medium enterprises; MSMEs; India.
  DOI: 10.1504/IJSE.2026.10070229
   
  
• The impact of economic inequality on fiscal multipliers: do Central and Eastern European countries stand out?  
  by Marko Senekovic, Jani Beko 
  Abstract: In the sample of 12 Central and Eastern European (CEE) countries employing a panel VAR and a regression analysis using pre-estimated fiscal multipliers derived from time-series VAR we investigate the impact of income and wealth inequality on the size of fiscal multipliers. For robustness, we simultaneously test the aforementioned relationship using a broader sample of 47 countries. We emphasise the following findings. First, in CEE countries, fiscal incentives predominantly produce positive output effects. Second, both panel and time-series analyses reveal that higher levels of income inequality are associated with larger fiscal multipliers in both the CEE countries and the broader sample. Third, regarding wealth inequality, the findings indicate mixed results, with some evidence suggesting a potential relationship between greater wealth inequality and higher fiscal multiplier values. Finally, higher levels of public and private debt, along with lower levels of net savings, are linked to larger fiscal multipliers in CEE countries.
  Keywords: fiscal policy; economic inequality; panel VAR; CEE countries.
  DOI: 10.1504/IJSE.2026.10070368
   
  
• Impact of sustainability quality on ASEAN firms value  
  by Josua Tarigan, Angela Novianti Pranoto, Saarce Elsye Hatane, Ming-Lang Yeh 
  Abstract: This study investigates the impact of Quality Sustainability Assurance (QSA) and Sustainability Performance (SP) on firm value, using panel data from 190 firm-year observations across 2019-2023. It also examines SP as a moderating variable in the relationship between QSA and firm value. The research highlights the significance of robust sustainability practices in enhancing corporate value, particularly in ASEAN's evolving sustainability landscape. Utilizing the Weighted Least Squares, the results also show the importance of having the quality of sustainability reporting consistent with actual SP. Profitability, asset size, and leverage-control measures also reveal expected effects on firm value. This shows how QSA and SP jointly affect firm valuation, stressing the need for companies to not only credibly report their sustainability efforts but also deliver significant SP. By this value proposition, regulators and stakeholders must prioritise assurance quality improvement and meaningful practices for sustainability in the corporate sector.
  Keywords: quality sustainability assurance; QSA; sustainability performance; SP; firm valuation.
  DOI: 10.1504/IJSE.2026.10070629
   
  
• Macroeconomic determinants of financial inclusion in India: an econometric perspective  
  by Bhagirath Prakash Baria, Devanshi Himanshu Mehta 
  Abstract: Even though India has achieved significant milestones in improving financial access, there persists a large unbanked population whose financial participation can be leveraged for inclusive development. This paper examines India’s tryst with financial inclusion from a macroeconomic perspective by employing a uniquely composed financial inclusion index while also modelling its determinants. Time-series data on diverse macroeconomic forces such as output growth, inflation, financial services cycle, and financial infrastructure are causally juxtaposed with financial inclusion. The study timeframe covers the entire post-reform period. A reduced-form single-equation econometric framework is employed. Findings indicate that the macroeconomic forces have shown prominence in shaping financial inclusion, challenging the predominance of microeconomic factors in the literature. Results are robust on both theoretical and econometric grounds. Novel insights are offered on the macroeconomics of financial inclusion in emerging economies like India along with valuable lessons for future developmental strategies.
  Keywords: development economics; econometric modelling; financial cycles; financial inclusion; macroeconomics.
  DOI: 10.1504/IJSE.2025.10070736
   
  
• Relationship between industrial development and energy-related industrial CO emissions in Bangladesh: application of ARDL and LMDI models  
  by Md. Atikur Rahaman, Md. Afzal Hossain, Kanasani Rajesh 
  Abstract: This research investigates the relationship between industrial growth and CO2 emissions stemming from energy consumption in Bangladesh's industrial sector. Employing the ARDL bound test and LMDI decomposition index model, our analysis reveals that energy consumption and industrial development exert long-term positive effects on CO2 emissions. LMDI decomposition index model shows that industrial economic activity and labour factor are the two key factors causes driving up CO2 emissions. But only to the degree that industry energy intensity, emissions, and energy structure variables allow for the minimization of CO2 emissions. By elucidating these relationships and proposing actionable strategies, this study contributes to the discourse on responsible industrial growth amidst the imperative to combat global warming.
  Keywords: industrial development; energy consumption; CO₂ emissions; decompositions; decoupling; ARDL model; Bangladesh.
  DOI: 10.1504/IJSE.2025.10071009
   
  
• Modelling sustainability challenges and opportunities for microfinance institutions in the Arab region  
  by Nahil Saqfalhait, Mohammad W. Alomari, Abdullah AlGhazali, Omar M. Alzoubi 
  Abstract: This study aims to develop a two-step approach for assessing the sustainability of 27 Microfinance Institutions (MFIs) in nine Arab countries during the years from 2010 to 2018. The first step applies the Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) approach to develop MFIs’ sustainability scores, considering the financial and social performance dimensions. The second step investigates how firms-level factors and macroeconomic performance may influence the sustainability of these institutions, utilizing the dynamic panel data regression models GMM and FM-OLS. Our findings reveal that over the period the overall sustainability of MFIs increased steadily from 55 to 81 percent, while the average threshold of the microfinance industry was 66 percent. Our empirical analyses demonstrate that profitability and outreach have positively influenced MFIs’ sustainability. In contrast, higher financial leverage and administrative costs and GDP growth may hurt their sustainability in the long run.
  Keywords: microfinance institutions; MFIs; sustainability challenges; sustainability opportunities; TOPSIS; panel GMM analysis.
  DOI: 10.1504/IJSE.2026.10071061
   
  
• Does economic inequality have a mitigating effect on carbon inequality? The role of economic development in emerging market economies  
  by Gupteswar Patel, Rajashree Samal 
  Abstract: The study investigates the relationship between economic inequality and carbon inequality within emerging economies. The augmented mean group (AMG) approach has been employed to analyse how variations in income distribution contribute to disparities in carbon emissions in 22 emerging economies from 1990 to 2019. Further the study has focused on the impacts of economic growth, urbanisation, and natural resources rent. The findings show that economic inequality worsens carbon disparity, revealing the complex relationship between economic and environmental issues. Further results show that economic expansion, urbanisation, and natural resource rent increase carbon disparity. The feasible generalised least squares (FGLS) estimate approach confirms these findings robustness. Our research emphasises the importance of addressing income inequality to promote equitable and sustainable development.
  Keywords: carbon inequality; economic inequality; economic development; emerging economies; panel data.
  DOI: 10.1504/IJSE.2026.10071422
   
  
• Unemployment, GDP, and CO₂ emissions: new theoretical foundations and mathematical tools for the analysis of the Environmental Phillips curve  
  by Rosa Ferrentino, Luca Vota 
  Abstract: The theoretical and empirical foundations of the environmental Phillips curve, namely, the inverse relationship between air pollution and unemployment, remain unclear. In this manuscript, the authors use an original model to demonstrate that two alternative specifications of such a curve are possible, namely, the difference version (that comprises the first differences of the variables of interest) and the gap version (that includes the difference of the unemployment rate and emissions of CO₂ from their respective equilibrium values). The regression analysis conducted on US time-series proves that, thanks to its ability of taking into account the business cycle fluctuations, the gap version outperforms its difference counterpart. Appropriate policy recommendations are provided and discussed.
  Keywords: environmental economics; environmental Phillips curve; pollution; generalised method of moments; mathematical methods.
  DOI: 10.1504/IJSE.2026.10071632
   
  
• Gender in social responsible investment: an application of norm activation model  
  by Rajdeep Kumar Raut, Rohit Kumar 
  Abstract: Understanding the unprecedented impact of business operations on societal ethical and sustainable financial decision-making, this study focuses on investor’s pro-environmental personal norms along with egoistic values and observes the comparative effect of male and female on socially responsible investment (SRI) intention in an emerging market. A two-step structural equation model was employed to analyse construct reliability and validity and to test hypotheses and overall model predictability. The results indicate that awareness of consequences (AC) and ascribed responsibility (AR) substantially impact personal norms. Personal norms based on AC and AR were shown to be significant but scored lower than economic or egoistic considerations for SRI. In addition, the relationship between the awareness of consequences and personal norms exhibited a full mediation effect of ascribed responsibility. The moderating role of gender was also established between egoism and intention of young investors.
  Keywords: sustainability; stock market; ascribed responsibility; egoistic values concern; SRI; NAM.
  DOI: 10.1504/IJSE.2025.10071655
   
  
• Time-frequency volatility connectedness between clean energy and commodity markets: Implication for portfolio diversification under crises  
  by Mourad Mroua, Wafa Abdelmalek, Molka Khemakhem 
  Abstract: This study employs the TVP-VAR-based frequency connectedness approach to examine the volatility connectedness between regional and sectoral clean energy markets and commodity markets from January 2020 to April 2024, focusing on the COVID-19 pandemic, the Russia-Ukraine conflict, and the Israel-Palestine war. Our findings reveal that market connectedness is time-varying and significantly intensifies during extreme events, particularly during the COVID-19 pandemic. Furthermore, our findings demonstrate that long-term components predominantly drive this connectedness. While the American clean energy market serves as the primary net transmitter of volatility shocks, the Asian clean energy market consistently acts as a net receiver. Additionally, the minimum connectedness portfolio analysis suggests that incorporating clean energy and commodity assets into a portfolio effectively mitigates the risk associated with energy commodities. These key findings offer valuable insights for investors in optimizing portfolio asset allocation involving clean energy and commodity markets during crises. Moreover, they provide policymakers with crucial guidance for developing policies aimed at fostering the growth of the clean energy market.
  Keywords: clean energy; commodities; TVP-VAR frequency; minimum connectedness portfolio; COVID-19; Russia-Ukraine conflict.
  DOI: 10.1504/IJSE.2026.10071693
   
  
• Impact of income inequality on environmental quality: the role of urbanisation and government behaviour  
  by Siyuan Liu, Saifuzzaman Ibrahim, Lee Chin 
  Abstract: The aim of this study is to examine the impact of income inequality on environmental quality. Furthermore, the study focuses on the moderating influence of urbanisation and government behaviour in this relationship. The study collects data from 142 countries between 2010 and 2019 and then experimentally analyses it using the generalised method of moments (GMM). The findings provide three significant insights. First, exacerbating income inequality will lead to a decline in environmental quality. Second, there is a significant moderating effect of both urbanisation and government behaviour. Additionally, the results of the heterogeneity analysis show that only in high-income countries does income inequality significantly decrease environmental quality. Based on these findings, the government should consider the issue of income inequality when formulating environmental protection policies. Specifically, the government can promote income equity through tax policies and redistribution systems, thereby effectively improving environmental quality. In addition, the government should strengthen the planning and management of the urbanisation process and mitigate the negative impact of income inequality on environmental quality through reasonable government behaviours.
  Keywords: income inequality; environmental quality; government behaviour; urbanisation; moderating effect; generalised method of moments; GMM; cross-national panel data.
  DOI: 10.1504/IJSE.2026.10071947
   
  
• Exploring the impact of economic growth, export diversification, trade openness and renewable energy consumption on ecological footprint - evidence from India  
  by Saima Shadab 
  Abstract: This study investigates the nexus between economic growth, export diversification, trade openness, renewable energy consumption, and ecological footprint for India, using annual data from 1971 to 2014. The Lee-Strazicich unit root test is employed to take into account breaks in the data. Furthermore, the autoregressive distributed bound test (ARDL) has been used to examine the short and long-run relationship between the variables. The estimates reveal that economic growth and export diversification increase ecological footprint in the long run but not in the short run. Besides, the coefficient of renewable energy consumption indicates that an increase in it leads to an increase in ecological footprint. In contrast, an insignificant relationship between trade openness and ecological footprint was obtained. Based on the findings, the study recommends that an appropriate mix of policies related to energy efficiency, sustainable development and international trade is required to control environmental degradation in India.
  Keywords: economic growth; export diversification; ED; trade openness; TO; renewable energy consumption; ecological footprint; EF; environmental degradation; sustainability; India.
  DOI: 10.1504/IJSE.2025.10062962
   
  
• Economic freedom and financial development: do they reduce the shadow economy? A case study of Southeast Asian countries  
  by Buu Kiem Dang 
  Abstract: This study aims to assess the impact of economic freedom, financial development, and various macroeconomic factors on the scale of the shadow economy. The research sample includes ten countries in the Southeast Asian region (excluding Timor-Leste) for the period from 1995 to 2018. The author employs various estimation methods on panel data, including the fixed effect model, Driscoll and Kraay estimation, and two-step system GMM. The results indicate that economic freedom and financial development play significant roles in reducing the size of the shadow economy. This study suggests that: 1) governments should consider improving economic freedom, particularly through substantial enhancements in trade freedom; 2) governments need to implement more measures to facilitate access to credit for businesses and individuals in the private sector; 3) governments should maintain political stability in a stable and robust manner to contribute to reducing the size of the shadow economy.
  Keywords: economic freedom; trade freedom; financial development; shadow economy; Southeast Asian; political stability; credit for businesses; Driscoll and Kraay estimation; system GMM; fixed effect model; FEM.
  DOI: 10.1504/IJSE.2025.10065315
   
  
• Is there an environmental Kuznets curve for agriculture in Latin America?  
  by Sara A. Wong 
  Abstract: We use panel unit root and cointegration tests, with dynamic panel estimations, to assess the environmental Kuznets curve (EKC) hypothesis, that is, an inverted U-shaped relationship between emissions from agriculture and growth of 18 Latin America and the Caribbean (LAC) countries for the 1989-2019 period. Results indicate that each series is integrated of order one, and that the series are cointegrated in the two specifications applied. Results suggest an inverted U-shaped relationship between emissions and growth - confirming the EKC - for 10 LAC countries and the region (the 18 countries altogether) when applying the standard framework (relating emissions with growth only). The lack of control for essential policies is a criticism of this parsimonious standard model. However, results support an agricultural EKC for 11 LAC countries, but not for the region, when adding indicators that measure trade openness in agriculture and the use of renewable energy - two important policies in place in LAC during the period of study. Agricultural trade, in most cases, reduces emissions. Results inform improved agricultural climate change policy.
  Keywords: environmental Kuznets curve; EKC; greenhouse gas emissions; GHG; agriculture emissions; panel data; panel estimations; Latin America and the Caribbean; LAC.
  DOI: 10.1504/IJSE.2025.10069373
   
  
• The impact of expenses on the return of ESG and traditional mutual funds in India  
  by Bhakti Agarwal, Shailesh Rastogi 
  Abstract: This research endeavours to explore the relationship between the net asset value (NAV) and the total expenses ratio (TER) of both traditional and environmental, social, and governance mutual fund schemes in the Indian context. The study utilises a dataset spanning three years, encompassing nine traditional and nine ESG mutual fund schemes. The empirical analysis is conducted using panel data econometrics. The finding of this investigation reveals that the TER significantly and negatively impacts the NAV of both traditional and ESG funds. Additionally, this research highlights that traditional funds carry higher risk profiles in comparison to ESG funds, as evidenced by the greater variability in TER among traditional funds as opposed to ESG funds. This research has significant implications for fund managers and investors. The comparative analysis of traditional and ESG mutual fund schemes is an underexplored area of research, underscoring the uniqueness and novel contribution of the present study.
  Keywords: traditional fund; ESG fund; net asset values; NAVs; total expenses ratio; TER; mutual fund schemes; India.
  DOI: 10.1504/IJSE.2025.10066339
   
  
• An inverted U-shape relationship between economic growth and financial development: a study from FY20 countries  
  by Pratiwi Dwi Suhartanti, Bambang Iman Santoso, Mamduh M. Hanafi 
  Abstract: This study investigates the relationship between financial development and economic growth. Using the sample data of 85 countries, including 53 developed and 32 developing countries, we find results consistent with previous findings that financial development positively impacts economic growth up to a certain threshold. However, when we extend the analysis into developed-developing countries and four different income-level countries, we find that the thresholds tend to be lower for developing and low-income countries. Further investigations show that institutional quality affects the impact. The threshold is lower in countries with low institutional quality. We interpret that the countries with low institutional quality have less capability to contain the negative effect of the financial market, lowering the threshold. Thus, controlling the negative impact of the financial market is an important aspect of the relationship between financial development and economic growth.
  Keywords: economic growth; financial growth; threshold analysis; institutional quality; developing countries.
  DOI: 10.1504/IJSE.2025.10066658