The Relationship Between Macroeconomic Variables and JSE Socially Responsible Investments

Abstract

Socially responsible investing (SRI), grounded in environmental, social, and governance (ESG) principles, has gained momentum globally as investors seek to align financial returns with ethical and sustainable practices. However, limited research exists on the impact of macroeconomic variables on ESG-aligned indices in emerging markets like South Africa. This study investigates the short- and long-run effects of selected macroeconomic indicators—real GDP, inflation, interest rates, exchange rates, and money supply (M3)—on the FTSE/SE Responsible Investment Index and the Responsible Investment Top 30 Index, using monthly data from November 2015 to December 2024. An ARDL approach with robust standard errors reveals that exchange rate volatility significantly and negatively affects both indices in the short run. Real GDP shows a significant and positive long-run relationship with both indices, while inflation positively influences the Top 30 Index—suggesting its diversified composition buffers inflationary shocks. The repo rate negatively impacts the Top 30 Index in the long run, with a 1% increase leading to a 0.06% decline in index value. Error correction terms (-0.216 and -0.2219) for the two indices indicate moderate speeds of adjustment to long-run equilibrium at approximately 22% per month. These findings underscore the importance of macroeconomic stability for ESG investment performance and provide practical insights for investors, asset managers, and policymakers aiming to foster sustainable finance in South Africa. This study fills a gap in the literature by offering current, empirical evidence on how key economic variables interact with responsible investment indices in an emerging market context.