Decarbonizing Sub-Saharan Africa: the role of ESG engagement in reducing corporate carbon emissions

Reducing corporate carbon emissions is crucial for achieving global climate goals. Although ESG engagement may encourage firms to improve environmental performance, its effectiveness in reducing corporate carbon emissions remains underexplored in Sub-Saharan Africa. This study investigates the link between the environmental, social, and governance (ESG) performance and the carbon footprint of African companies in an attempt to determine whether a reduced environmental footprint is associated with high ESG performance. We examine 1,345 observations of firm-years in the energy and nonenergy industry using a panel dataset of 2014 to 2024 from the Bloomberg database, the World Bank, the IMF Climate Change database. This paper uses robust econometric designs like fixed effects, random effects, instrumental variables (2SLS, GMM and cluster-robust standard error models, mechanism analysis, and subsample analysis to establish the influence of ESG performance on carbon emissions. The current paper is part of the already established literature on the ESG and climate responsibility within the developing contexts, as it offers empirical evidence to support the claim, but on a continent that remains largely unexploited yet incredibly susceptible to the climate change. This study found that total ESG performance, environmental and social performance significantly decrease carbon emissions, however governance indicator has an insignificant influence on carbon emissions. The findings show that ESG engagement plays a vital in decreasing the carbon emissions of companies in Sub-Saharan Africa. They emphasize the importance of improving ESG practices and corporate environmental initiatives for the success of decarbonization strategies in the region.