Promoting energy sources diversification through ESG performance

This study is the first to investigate how the environmental aspect of the Environmental, Social, Governance (ESG) index contributed to the diversification of energy sources in 36 developed nations from 2000 to 2018. To analyze the heterogenous and non-linear effects, the Method of Moments Quantile Regression (MMQR) and the Partially Linear Functional-Coefficient (PLFC) Model are utilized. The findings indicate significant variations, showing that ESG environmental performance favourably influences energy source diversification across all quantiles from 10 to 90 %. Non-linear results demonstrate that ESG environmental performance negatively affects energy source diversification when economic growth is between 7.39 per cent and 9.91 per cent; however, this relationship turns positive when economic growth surpasses 9.92 per cent, indicating that economic development is crucial in the relationship between ESG environmental performance and energy sources diversification. Overall, the marginal effect plots generated by both the MMQR and PLFC models illustrate that an increase of one unit in ESG environmental performance results in a rise in energy source diversification. Moreover, robustness check shows that ESG environmental performance enhances energy sources diversification at both upper and lower regimes of ESG environmental performance. In conclusion, the importance of environmental quality in promoting energy transition is crucial. • The Method of Moments Quantile Regression (MMQR) and the Partially Linear Functional-Coefficient (PLFC) Model are employed. • ESG environmental performance positively impacts energy sources diversification across all the quantiles. • One-unit increase in ESG environmental performance leads to a surge in energy sources diversification. • The role of environmental quality to enhance energy transition is highlighted.