International Journal of Sustainable Economy (16 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
   
  
• Modelling connectedness and diversification among socially responsible investments in Asia
  by Neha Seth, Deepti Singh 
  Abstract: The study investigates the cointegration and volatility interdependence among sustainable indices of emerging Asian countries by employing Johansen's cointegration, Granger causality test and dynamic conditional correlation (DCC) GARCH model. The analysis reveals no long-run relationship among these indices, and all the indices are significantly affected by their lagged values. The results also present that past shocks and volatility have a significant role in the present volatility of the sustainable indices. However, past volatility has more impact, which lasts with stronger persistence. The significant DCC terms infer that volatility spillover exists between sustainable Asian markets. The study also calculated optimal portfolio weights to provide better diversification opportunities to minimise the risks without hampering the potential returns. The study suggests that long-term investors may earn profit by adding these non-integrated sustainable indices to their portfolios, but they must diversify and hedge to safeguard from losses during economic and financial turmoil.
  Keywords: volatility spillover; Johansen's cointegration; DCC-GARCH; sustainable stock index; optimal portfolio weights; emerging Asia.
  DOI: 10.1504/IJSE.2025.10060802
   
  
• Effects on firm decisions considering the temporality of environmental policy  
  by Felipe Rivera, Katherin López, Jorge Zamorano 
  Abstract: This research analyses the effects of the temporality of environmental policy on firms' location and abatement decisions. The policies are implemented by a regulator concerned about the welfare of society and environmental pollution. Therefore, it applies two instruments simultaneously: the tax on emissions, which seeks to internalise environmental costs, and the subsidy to clean technologies, which incentivises their adoption. In addition, the optimal levels of tax and subsidy that maximise social welfare are studied, considering the impact of the timing of the decision (ex-ante or ex-post). As for its resolution, a model of duopolistic firms competing in quantities in an emission-intensive sector is used. Among the main results, it is demonstrated that for both an ex-ante and ex-post implementation, social welfare is enhanced when environmental policies are in place. However, when the tax is applied ex-post and only one company chooses to remain in the local country, environmental damage increases.
  Keywords: environmental regulation; temporality of the decision; emission tax; subsidy R&D; location.
  DOI: 10.1504/IJSE.2025.10062267
   
  
• Nexus between agricultural production and environmental degradation based on the theory of environmental Kuznets curve: a dynamic panel data analysis  
  by Swati Sinha Babu 
  Abstract: Expansion and proliferation of agricultural sector plays a vital role in achieving the sustainable development goals related to ending poverty and hunger. However, its impact on the environment is not free from contention. The aim of present paper is to explore the association between agricultural production and methane emissions (as measure of environmental degradation), across 87 countries classified into higher, middle and lower income groups, covering the period 1990-2020. We have employed dynamic system generalisation method of moment (GMM) to investigate the environmental Kuznets curve hypothesis and study the long-run causal effects among considered variables. Results indicated presence of N-shaped relation between agricultural production and methane emissions for all groups of countries. Findings also revealed that fertiliser consumption and livestock production had detrimental impact on environment. Lastly, policy recommendations have been made related to agricultural production techniques and livestock management strategies that might help development of sustainable agriculture.
  Keywords: agricultural production; methane emission; rice cultivation; livestocks; environmental Kuznets curve; EKC; dynamic GMM; sustainability.
  DOI: 10.1504/IJSE.2025.10062034
   
  
• How do real and financial sectors in Africa respond to uncertainties from China, the USA and Europe?  
  by Oliver E. Ogbonna, Jonathan E. Ogbuabor 
  Abstract: In spite of rising cross-border propagation of uncertainty shocks occasioned by the recent COVID-19 outbreak, existing studies barely addressed cross-border uncertainty effect on real and financial sectors, especially in Africa. Thus, this study has taken the initiative to investigate how the real and financial sectors in Africa are reacting to policy uncertainties from China, the USA and Europe. The study employed the generalised method of moment procedures for 41 African economies from 2010 to 2019. We find that rising uncertainty in China and Europe have significant adverse impacts on Africa's real sector, while the impact of the USA uncertainty remains muted. Interestingly, we find that uncertainties from China and Europe have significant positive effects on Africa's financial sector, suggesting that Africa is a safe haven where investors transfer their investments away from risky environments witnessing high uncertainty. The study provides policy suggestions.
  Keywords: uncertainty; real sector; financial sector; two-step system GMM; Africa; China; the USA.
  DOI: 10.1504/IJSE.2025.10063600
   
  
• ESG disclosure and financial success: a comparative dive into India's manufacturing and service sectors  
  by Santi Gopal Maji, Prachi Lohia 
  Abstract: This paper examines the financial impact of environmental, social, and governance (ESG) disclosure in Indian manufacturing and service companies. The study employs a panel approach by utilising secondary data for a sample of 209 Indian-listed firms for 2020 and 2021. Empirical analysis conducted using suitable panel regression models reveals a significant positive financial impact of ESG disclosure in both sectors. However, manufacturing firms display improved market value while the service-sector firms experience higher accounting profits. This study highlights the role of a firm's sector in explaining the consequent financial impact of ESG disclosure. It also emphasises the need for higher but material ESG disclosure and heightened investor awareness. Notably, this study represents the first comparative analysis of ESG's effect on the financial performance of Indian manufacturing and service firms by considering indigenous ESG ratings from the Credit Rating Information Services of India Limited (CRISIL).
  Keywords: ESG; financial performance; manufacturing firms; service firms; CRISIL; India.
  DOI: 10.1504/IJSE.2025.10061702
   
  
• 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