EARNING DOWNSIDE RISK AND THE SIGNIFICANCE OF ESG PERFORMANCE IN THE PRIMARY ECONOMIC SECTOR

Abstract

This study explores the impact of corporate sustainability measured by environmental, social, and governance (ESG) performance on earning downside risk (EDR). We focus on the role of ESG performance in moderating firms' earning downside risk (EDR), especially in uncertain economic times. The economic uncertainty is evidenced by the recent global crisis of COVID-19. We conducted a multivariate regression analysis by utilising a large dataset from Refinitiv, covering 48 countries over fourteen years. Our findings revealed a significant negative association between ESG performance and EDR, suggesting that higher ESG performance correlates with reduced accounting downside risk. The analysis further demonstrates that the environmental and social components of ESG, closely aligned with the United Nations Global Compact Core Principles, play a crucial role in mitigating the adverse impact of the COVID-19 crisis, particularly in the primary economic sector. These results provide novel insights into the importance of sustainable practices in enhancing corporate resilience during times of global economic uncertainty.