Air Quality and Corporate Sustainability: Unveiling the ESG Consequences of Pollution Exposure

Abstract

This study investigates the impact of air pollution on the corporate ESG performance metrics of a particular firm from all over the world. Based on an extended database of 11,660 firm-year observations from 1995 to 2018, we discover that air pollution leans towards negatively affecting the ESG scores. Even after adjusting for endogeneity issues using a two-stage-least square estimator and a system generalized-method-of-moments regression, our results obtained are robust to considering other way to measure air pollution and ESG score. We additionally point out that firms investing in technological innovation can significantly mitigate the negative association between air pollution and ESG score while high economic policy uncertainty would exacerbate the adverse nexus. The outcome of this paper has potential meaning for analysts, investors, regulators, and business organizations