Role of ESG and private equity on environmental degradation: a nexus of opportunity and responsibility for developing and developed countries

Purpose - As concerns about global warming and environmental degradation have intensified, researchers are trying to create a deeper understanding of country-specific factors that affect environment so that economic growth can be simultaneously achieved. Recently, private equity (PE) has emerged as a significant form of corporate investment worldwide, compelled to reconcile their financial objectives along with the burgeoning demand for sustainable investment practices. However, the nexus between environmental degradation and PE investment at the country level is yet to be explored. Design/methodology/approach - The study uses annual data for 78 developed countries from 2002 to 2020 and 107 developing countries, which have been divided into 54 lower-middle-income and 53 upper-middle-income countries, to explore the relationship between carbon emission, economic growth and PE investment within an energy growth and Environmental Kuznets curve (EKC) framework. Findings - The study finds the existence of the EKC hypothesis for developed, upper-middle-income developing and lower-middle-income developing countries. PE investment reduces environmental degradation by providing investments in cleaner technologies, energy-efficient sources and renewable investments. Better human development index (HDI) reduces carbon emissions, as more education and knowledge involve an understanding of environmental protection. Increased climate risk index increases carbon emissions, and therefore, the study provides insights for policymakers and government to enhance PE investments within a country, which will eventually lead to development of sustainable business practices. Originality/value - The study is the first of its kind to look into the impact of PE as a source of investment on environmental degradation, incorporating economic growth and environmental, social and governance (ESG) factors.