Harmonizing Sovereign ESG Indicators with HeXie Management Theory

Abstract

Aggregating variables to monitor sustainable development is prevalent, yet interpreting composite indices, which encompass a variety of distinct dimensions, is often challenging. This calls for the adoption of solid conceptual frameworks for index construction and interpretation. This study exploits the HeXie management theory to classify the World Bank's sovereign environmental, social, and governance (ESG) indicators, offering fresh insights into societies' strengths and weaknesses in addressing corresponding concerns. Analysis of 2020 ratings reveals that Norway, New Zealand, and Switzerland excel in motivating residents for ESG initiatives, while Sweden, Japan, and Finland lead in mechanism design to manage ESG progress. Moreover, Sweden, Japan, Finland, Switzerland, Austria, the Netherlands, and Luxembourg are found to be the most promising countries to enter a double-helix, virtuous circle for further development. Additionally, the study utilizes panel data from 61 countries spanning 2002 to 2020 and a two-way fixed-effects estimator to examine the classification. Overall, it explores the potential value of integrating management theories to create composite indices.