Combining good business and good development: Evidence from IFC Operations
Desai, Raj M.; Kharas, Homi; Amin, Magdi | May 2017
Abstract
Most studies of the links between corporate environmental and socially sustainable actions find a positive link with financial performance. Most of these studies, however, have analyzed firms only in developed countries, and their identifying assumptions do not typically allow causal inferences. We are able to study firm performance in developing countries by using data from investments made by the International Finance Corporation (IFC) across over 1,000 projects between 2005 and 2014 in close to 100 middle- and low-income countries. The IFC provides information on the financial performance of their investments as well as ratings of environmental, social, and governance (ESG) outcomes. It is well established that such data may be affected by random and systematic error and that there is unavoidable endogeneity between ESG and financial performance since profitable firms can afford to behave more sustainably. Using an instrumental variables approach, we find that the relationship between a firm’s sustainability behavior and profits disappears. However, there is some evidence that both sustainability and profits can jointly impact broader private sector development. Our results have implications for how best to blend public and private finance in the cause of sustainable development.
Citation
Desai, Raj M.; Kharas, Homi; Amin, Magdi. 2017. Combining good business and good development: Evidence from IFC Operations. © Brookings India. http://hdl.handle.net/11540/7125.Keywords
International Financial Market
Multilateral Financial Institutions
Economic Recession
Market
Crisis
Economic indicators
Growth models
Gross domestic product
Macroeconomics
Economic forecast
Financial Stability
Financial Management System
Financial Restructuring
Capital Market Development
Market Development
Economics
Erosion
International Economics
Macroeconomic
Macroeconomic Analysis
Performance Evaluation
Impact Evaluation
Business recessions
Multilateral development banks
Regulatory reform
Capital
Exports
Economic development projects
Economic policy
Economic forecasting
Show allCollapse