Does 'Who Cares Wins' hold through business cycles? A study on how economic climate influences consumer behavior towards ESG

Abstract

This paper explores the relationship between corporate ESG (Environment, Social & Governance) and product sales, using granular monthly retail scanner data for North American sales from 2020 through 2024. I estimate this relationship using ordinary least squares models, first to reveal trends within the baseline relationship by controlling for product and month level heterogeneity. Second, I offer a novel contribution by investigating whether this relationship is influenced by macroeconomic conditions, controlling for product fixed effects. My results reinforce the existing finding that company ESG (when discounted according to controversies) is positively correlated with sales performance. I show that this relationship is amplified in the sales of “budget” priced and dampened in the sales of “luxury” priced products. Notably, I find that periods of high inflation and high unemployment suppress the sales benefit associated with corporate ESG, with some evidence that periods of high consumer sentiment may strengthen it. These impacts, whether marginally positive or negative, tend to be driven by products in the high or “luxury” price ranges. Nevertheless, ESG maintains a positive relationship with sales throughout all conditions studied. These findings have important economic implications: for the private sector, investment in ESG is a robust strategy consistently related to a stronger sales performance, even during adverse economic climates. For the public sector, the use of potential demand-driving policy corrections could be considered to provide stimulus for consumers to maintain sustainable shopping habits.