ESG environmental performance and energy sources diversification: Insights from quantile regressions

This study investigates the effects of energy source diversification on countries' ESG environmental performance scores. To this aim, we use panel data from 36 developed economies covering the period from 2000 to 2018. As a novelty, in contrast with the point estimators based on OLS, we employ the recently introduced robust estimators, i.e., Method of moments quantile regression (MMQR) and instrumental variable quantile regression (IVQREG), to account for the variation in the energy diversification and environmental performance relationship across the different levels of the ESG score. The empirical results from both robust estimators support the positive effects of energy diversification on ESG environmental performance across most quantiles. However, this relationship is less significant for countries with higher environmental scores. The positive effect of diversification is more pronounced in countries with lower environmental performance. As the country reaches higher environmental performance quantiles, the impact of diversification diminishes. The results show that economic growth increases environmental performance across all quantiles. The results also suggest that although government effectiveness is an essential prerequisite for achieving environmental objectives, globalization has a negative effect on environmental quality, especially in lower ESG-score countries, as it leads to higher energy consumption. Hence, policymakers should not rely on fossil fuels but rather focus on energy sources that emit zero or negligible carbon. The transition to renewable energy requires establishing economic expertise and stability to foster the breakthroughs needed.