ESG in Dynamic Stochastic General Equilibrium (DSGE): Driving Forces for SDGs

Abstract

As global attention to sustainability grows, integrating Environmental, Social, and Governance (ESG) factors into macroeconomic models is crucial for understanding their impact on achieving Sustainable Development Goals (SDGs). This study develops a Dynamic Stochastic General Equilibrium (DSGE) model, validated with a Structural Vector Autoregression (SVAR) model, to assess how ESG factors act as driving forces for the SDGs. The findings reveal that ESG investments, particularly those enhancing environmental quality, involve a short-term trade-off with consumption but lead to long-term capital accumulation, improved production efficiency, and macroeconomic stability. Empirical analysis using data from China confirms the positive impact of ESG factors on consumption and capital. This study highlights the critical value of incorporating ESG into economic modeling, providing key quantitative insights for policymakers formulating strategies t hat promote sustainable development.