The impact of financial sanctions on ESG performance of target countries

By employing a panel data analysis that covers for 102 countries from 1990 to 2020, this paper investigates the impact of financial sanctions on Environmental, Social, and Governance (ESG) performance of target countries. The results firstly demonstrate that financial sanctions significantly hampered the ESG performance of target countries. More specifically, the implementation of financial sanctions hinders environmental sustainability (E), social equality (S), and corporate governance (G) of target countries respectively. In addition, this paper also finds that financial sanctions significantly decrease ESG performance by restricting foreign capital flow, decreasing the level of globalization and increasing financial risk. Last but not least, this paper concludes that financial development and democracy can create a favorable environment for ESG performance in sanctioned countries and mitigate the adverse effects of financial sanctions.