How Trade Policy Uncertainty Affects ESG Investment Flows: Time-Series Analysis Using IMF and Sustainalytics Data

Najmi Kamariah (), Abdul Rahman Kadir, Nuraeni Sayuti and Nur Rezky Amaliah
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Najmi Kamariah: Hasanuddin University
Abdul Rahman Kadir: Hasanuddin University
Nuraeni Sayuti: Hasanuddin University
Nur Rezky Amaliah: Hasanuddin University

A chapter in Proceedings of the 10th International Conference on Accounting, Management, and Economics (10th ICAME 2025), 2026, pp 2155-2169 from Springer

Abstract: Abstract This study investigates the impact of trade policy uncertainty (TPU) on Environmental, Social, and Governance (ESG) investment flows using a dynamic panel data model and monthly data from 15 major economies between 2010 and 2023. Drawing on Real Options Theory and Institutional Theory, we hypothesize that rising TPU negatively affects ESG investments, particularly in trade-integrated markets and trade-sensitive sectors. We further posit an asymmetric investor response, with rapid outflows during uncertainty spikes but slow recovery. Employing System GMM estimation and IMF’s TPU index, we find robust evidence that a one-standard-deviation increase in TPU reduces monthly ESG fund inflows by USD 1.42 billion. This effect is stronger in economies with higher trade openness and funds exposed to trade-dependent ESG sectors. Moreover, analysis of positive and negative TPU changes reveals a significant hysteresis effect, indicating that ESG investors respond swiftly to uncertainty shocks but cautiously to subsequent stabilization. These findings underscore the vulnerability of sustainable finance to trade policy shocks and highlight the need for policy coordination to build resilient ESG investment frameworks.

Keywords: Track Policy Uncertainty; Structural Exposure; Trade Integration; Asymmetric Repair; ESG (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6239-709-5_150

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DOI: 10.2991/978-94-6239-709-5_150

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