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Impact of ESG preferences on investments and emissions in a DSGE framework

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  • Wang, Ren
  • Bian, Yuxiang
  • Xiong, Xiong

Abstract

This paper delves into the effects of environmental, social, and governance (ESG) factors on investment behavior and emissions using a dynamic stochastic general equilibrium framework. We discover that households with a strong ESG ethos significantly increase their green investing, which influences pricing dynamics between green and nongreen capital. Entrepreneurs with ESG preferences intensify efforts to curb emissions, leading to pollution reduction and higher abatement costs. Our simulations suggest that heightened ESG preferences among entrepreneurs and households could pivot investments toward sustainability, though it might adversely affect overall output. This research highlights the pivotal role of ESG considerations in promoting sustainable economic practices, offering a forward-looking perspective on integrating ESG criteria into economic and policy planning to foster environmental and economic sustainability.

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  • Wang, Ren & Bian, Yuxiang & Xiong, Xiong, 2024. "Impact of ESG preferences on investments and emissions in a DSGE framework," Economic Modelling, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:ecmode:v:135:y:2024:i:c:s0264999324000877
    DOI: 10.1016/j.econmod.2024.106731
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    More about this item

    Keywords

    Dynamic stochastic general equilibrium; Emissions; Environmental; social; and governance preferences; ESG preferences; Investment;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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