Climate Policy Uncertainty And Esg: Evidence From The Uk

Abstract

This research examines the impact of Climate Policy Uncertainty (CPU) on enterprise Environmental, Social, and Governance practices (ESG), utilizing 6,930 firm year observations from 790 UK firms during the period from 2002 to 2023. The findings indicate that amid moments of high uncertainty, companies improve their overall ESG performance. This association holds true for ESG subdimensions such as emissions, resource consumption, personnel, administration, and corporate social responsibility (CSR) strategies. Additionally, during times of high uncertainty, corporations in highly concentrated sectors and those with high financial flexibility boost their total ESG activities and corporate performance regarding the environment. These findings show that organizations adopt ESG practices as risk-reducing activities, similar to insurance, under circumstances of high uncertainty. Overall, the findings support the stakeholder hypothesis, indicating that businesses raise their ESG practices not just to limit corporate risk-taking but also to pursue profitable endeavors during times of high uncertainty, meaning more stakeholder involvement.