The threshold effects of ESG performance on the energy transitions: A country-level data

Abstract

What are the key drivers of energy transition? Is there any nonlinear effects in the transitions? In this study, we examine the three sets of factors – environmental, social, and governance (ESG) – believed to have played roles driving the energy transitions in three leading countries (Sweden, Switzerland, and Norway) and three emerging countries (India, South Africa, and Cambodia) over a period of two centuries. We also intend to make a noteworthy contribution by using the panel threshold regression with Elastic net estimation to find the key drivers of the energy transitions under the nonlinear setting. Given the GDP per capita as the threshold variable, our empirical results confirm the existence of the nonlinear impacts of several ESG variables. In particular, when the GDP per capita level is below the threshold value, the impact of ESG on the energy transitions becomes stronger. We also find a significant positive effect of the factor of unemployment. However, when the level of GDP per capita exceeds the threshold value, school enrollment is the key driver of the energy transitions. Since ESG disclosure is becoming more valued and the transitions to sustainable energy is required.