A Tailored ESG Framework for Economic Growth in Saudi Arabia: ARDL Evidence from 1990 to 2022

Abstract

This study examines the impact of environmental, social, and governance (ESG) performance on economic growth in Saudi Arabia from 1990 to 2022. It uses a tailored ESG index and applies ordinary least squares (OLS) and autoregressive distributed lag (ARDL) models. The analysis reveals that while individual ESG components do not show significant short-term effects, the composite ESG index has a statistically significant positive effect on long-term GDP growth. These findings highlight the importance of integrated ESG strategies in enhancing economic resilience and diversification in resource-based economies. Moreover, although oil rents and trade openness continue to support short-term growth, they are associated with governance and environmental trade-offs, reflecting transitional challenges on the path to sustainability. Thie study provides new empirical evidence on the macroeconomic relevance of ESG in emerging economies and introduces a context-specific ESG index aligned with national policy goals. The results underscore the need to embed of embedding ESG frameworks into national development plans to ensure long-term economic resilience and structural transformation in line with Vision 2030.

1. Introduction

In recent years, the global shift toward sustainability-focused development has increased the importance of environmental, social, and governance (ESG) frameworks in economic policy, investment evaluation, and institutional reform. ESG principles are no longer limited to corporate disclosure—they are increasingly viewed as tools to promote long-term resilience and inclusive growth. This is especially true for resource-dependent economies like Saudi Arabia, where structural diversification is both a national priority and a developmental challenge [1].

Despite its oil wealth, Saudi Arabia faces a critical sustainability dilemma regarding how to transition from fossil fuel dependence to a diversified, innovation-driven economy without compromising long-term development goals. This transition is not merely economic; it involves deep societal changes in governance, social equity, and environmental responsibility.

Although ESG frameworks are widely adopted in global financial systems, their macroeconomic relevance in emerging, resource-rich economies remains underexplored. Most existing frameworks and empirical studies focus on developed markets and emphasize firm-level financial performance or compliance reporting [2]. These approaches often fail to capture the policy-driven, macroeconomic transitions underway in emerging economies. Saudi Arabia’s Vision 2030 outlines broad sustainability objectives, including reduced oil dependency, gender inclusion, institutional reform, and renewable energy expansion. Yet, there remains a significant gap in understanding how ESG progress—when aligned with such national priorities—affects long-term macroeconomic outcomes.

This study constructs a country-specific ESG index using indicators that reflect the country’s reform priorities—such as CO₂ emissions, gender parity in education and employment, and governance effectiveness—providing a context-specific measure of sustainability progress. While ESG adoption is well-documented in industrialized economies [2,3], most research focuses on firm-level disclosure practices in developed contexts. Saudi Arabia presents a unique case for macro-level ESG analysis. There is limited empirical evidence on how ESG implementation translates into national growth outcomes, particularly in economies undergoing systemic institutional reform and diversification.

However, the role of ESG in this transformation remains underexplored in the empirical literature. Recent regional work by [4] highlights the importance of integrating environmental progress with social inclusion and institutional responsiveness. Still, most existing studies are descriptive or limited to micro-level assessments, lacking a tailored ESG framework suited to the Saudi context. These limitations highlight the need for a country-specific ESG model that can inform structural transformation and long-term economic sustainability beyond compliance or reporting standards.

To address this gap, this study constructs a country-specific ESG index tailored to Vision 2030 priorities and empirically evaluates its short- and long-term effects on Saudi Arabia’s GDP using OLS and ARDL models over the period 1990–2022. This approach allows us to capture both immediate and dynamic relationships between ESG performance and economic growth.

The findings show that while disaggregated ESG components lack short-run statistical significance, the composite ESG index has a strong positive effect on GDP in the long run. This underscores the importance of integrated ESG implementation as a strategic tool for sustainable development.

Thus, ESG adoption in Saudi Arabia is not merely a reporting obligation but a strategic catalyst for institutional reform, environmental sustainability, and economic diversification. Theoretically, this research extends the ESG discourse into the macroeconomic policy domain for resource-dependent economies, bridging a clear gap in the literature. Practically, it offers an original, replicable framework for policymakers under Vision 2030 and similar development agendas, illustrating how a targeted ESG strategy can support structural economic transformation.

In summary, this study contributes to the literature by (i) introducing a Saudi-specific ESG framework aligned with Vision 2030; (ii) empirically analyzing ESG’s macroeconomic effects in a resource-based economy; and (iii) providing policy-relevant insights for emerging economies seeking to institutionalize ESG as a development instrument.

2. Literature Review

The integration of environmental, social, and governance (ESG) principles into national economic planning has become central to achieving long-term sustainability and resilience. ESG frameworks help align economic growth with environmental responsibility, social inclusion, and institutional reform—particularly in resource-rich economies facing structural change [1]. Despite the growing interest in ESG, the macroeconomic relevance of these frameworks in non-Western, resource-dependent contexts remains underexplored. This highlights a significant gap in how national development strategies, especially in emerging economies, operationalize ESG principles.

2.1. Theoretical Foundations

Stakeholder theory [5,6] emphasizes that institutions must consider broader societal impacts, not just shareholder returns. This supports ESG’s role in national policy, where governments must address social equity, environmental protection, and governance quality. Green economy frameworks, as discussed by [7], further support the notion that sustainability-oriented economic transitions open new opportunities for long-term development, especially in emerging economies. Sustainability transitions theory further explains that achieving long-term development requires systemic shifts toward low-carbon, inclusive growth models [8]. Saudi Arabia’s Vision 2030 reflects this shift, aiming to diversify the economy and embed sustainability in public institutions [9].

Institutional economics also places governance at the core of sustainable growth. Effective institutions, transparency, and anti-corruption measures are essential to ESG success. This aligns with the institutional economics frameworks of [10,11], who argued that inclusive and well-functioning institutions are key drivers of sustained economic development. Refs. [12,13] argued that many ESG frameworks overlook governance, which is critical in resource-dependent settings. Importantly, [14] pointed out that in resource-based economies, governance constraints can limit diversification. However, strategic ESG adoption may help overcome such barriers by strengthening institutional effectiveness and regulatory compliance. Yet, as [15] argued, mainstream green growth narratives can overlook the economic constraints faced by developing countries, including their need for development space, flexibility in policy design, and gradual transitions. His critique reinforces the importance of adapting ESG and sustainability strategies to local institutional and economic contexts, rather than adopting one-size-fits-all global models. This view is echoed in the Brundtland Commission’s definition of sustainable development as advancing environmental integrity, social inclusion, and governance effectiveness together [16].

Overall, these theoretical perspectives highlight that successful ESG integration in resource-based economies must address structural and institutional limitations, adapt to local governance conditions, and align with national reform trajectories. However, empirical studies that apply these theories to country-specific ESG implementation remain limited, particularly in the case of Saudi Arabia.

2.2. Empirical Evidence

Meta-analyses support the ESG–performance link. For example, [1] found that nearly 90% of studies reported a non-negative association between ESG factors and financial or economic performance. Building on this, recent studies have explored both ESG-specific frameworks and broader sustainability efforts. As [17] demonstrated, country-level ESG performance positively influences economic growth across both developed and emerging economies, positioning ESG as a strategic factor in long-term national development. Supporting this, [18] found that economic growth in East Asia Pacific and South Asia is significantly shaped by ESG-aligned strategies, underscoring the growing policy relevance of ESG in emerging market contexts.

Complementing this, [19] confirmed that broader sustainable development initiatives—not limited to ESG—also contribute positively to macroeconomic outcomes. Frameworks such as the Sustainability Accounting Standards Board (SASB), as discussed by [20], reflect the growing institutionalization of ESG metrics, yet they remain primarily focused on corporate-level reporting in developed markets. This underscores the need for national-level, policy-aligned ESG indices in emerging economies. Ref. [21], examining G-20 economies, similarly found a significant relationship between environmental and social performance and GDP per capita, reinforcing the macroeconomic relevance of sustainability indicators.

At the sectoral level, [22] found that ESG performance significantly enhanced economic performance in high-profile industries in Indonesia, illustrating the potential of ESG integration even within emerging market firms. However, the relationship between ESG and financial or economic performance is not always linear. Ref. [23] emphasized the importance of disaggregating ESG dimensions, showing that individual components may have distinct and sometimes non-linear effects on outcomes. This supports the rationale for examining both composite and individual ESG indicators in the present study.

Among the ESG pillars, governance emerges as the most consistently influential. Ref. [2] highlighted its strong and stable association with long-term economic outcomes. In emerging economies, however, ESG–growth dynamics often depend on institutional context. Ref. [24] found that governance quality significantly improves environmental outcomes, suggesting that ESG effectiveness increases where institutional foundations are robust. Disclosure practices also matter, as [25] showed that board characteristics directly influence ESG transparency in the energy sector across emerging markets, reinforcing the institutional role in shaping ESG outcomes. In the GCC, global indices often overlook local policy dynamics. Accordingly, several studies call for tailored ESG frameworks aligned with domestic priorities [26,27]. For Saudi Arabia, important indicators include renewable energy adoption, women’s labor force participation, and institutional stability [28,29,30]

Recent evidence also shows that renewable energy policy reforms introduced in Saudi Arabia during 2019–2020 triggered structural shifts in the relationship between FDI, energy use, and growth in Saudi Arabia [31]. These developments reflect a broader effort to integrate sustainability into national development planning. Ref. [32] found that renewable energy contributes meaningfully to growth only when supported by high-quality governance. This reinforces the need for an ESG framework that reflects country-specific realities. Ref. [33] further demonstrated that composite ESG indices have greater explanatory power than disaggregated components, supporting the integrated approach used in this study. This aligns with the conclusions of [1] and [14], who emphasized that coordinated sustainability strategies—not fragmented reforms—are key to achieving long-term economic resilience. Yet, despite this evidence, no prior study has applied a context-specific ESG index in Saudi Arabia to assess its long-run macroeconomic effects.

2.3. Hypothesis Development

Based on these theoretical and empirical insights, this study proposes three hypotheses, as follows.

First, individual ESG components may not produce immediate effects on GDP growth due to implementation lag and policy sequencing. Prior studies show that environmental and social reforms take time to influence macroeconomic indicators and require institutional support to be effective [29,34]. Therefore, the first hypothesis (H1) posits that the individual ESG components—environmental, social, and governance—have limited short-term effects on GDP growth.

Second, integrating these components into a composite ESG index may yield stronger and more consistent results. Empirical findings suggest that an integrated approach better reflects the interdependence of sustainability reforms and can promote long-term structural change [17,24]. Accordingly, the second hypothesis (H2) states that a composite ESG index integrating all three dimensions has a significant positive impact on long-term GDP growth.

Finally, traditional growth drivers such as oil rents and trade openness continue to play a dominant role in the short run. However, ESG integration may complement these drivers by enabling more resilient and sustainable development pathways. This expectation is supported by studies on the Environmental Kuznets Curve (EKC), which suggest that environmental improvements often follow initial stages of resource-driven growth as institutions mature [35]. Thus, the third hypothesis (H3) holds that while traditional economic drivers remain dominant in the short term, they can be effectively complemented by ESG integration to support sustainable development transitions.

2.4. Research Gap and Study Contribution

Despite increasing global attention to ESG, there remains a notable lack of macro-level studies specifically tailored to the structural realities of resource-dependent economies. Most existing ESG frameworks and empirical assessments are designed for developed markets and often fail to reflect national reform agendas in countries like Saudi Arabia. Additionally, limited research has evaluated the long-run economic implications of ESG performance using national-level, context-specific indices. This study addresses these gaps by (i) constructing a tailored ESG index aligned with Saudi Arabia’s Vision 2030 priorities, (ii) empirically testing its macroeconomic effects using long-term national data from 1990 to 2022, and (iii) analyzing both disaggregated and composite ESG impacts through robust econometric techniques. These contributions advance the literature on sustainable transitions by offering both a replicable methodological framework and policy-relevant evidence for emerging economies seeking to integrate ESG into their national development strategies.

The relationships among these variables are summarized in the conceptual framework (Figure 1), which links ESG components and traditional economic drivers to short- and long-run GDP growth outcomes.

3. Methodology

This study examines the relationship between ESG performance and economic growth in Saudi Arabia over the period 1990–2022, using annual data. The methodological approach combines a tailored ESG framework aligned with national priorities and econometric modeling to assess both short-term and long-term effects on GDP growth, in line with the sustainable development goals of Vision 2030. The ESG indicators selected for this study are aligned with Saudi Arabia’s Vision 2030 goals and international sustainability measurement practices. According to [36], green growth progress requires measurable indicators that capture environmental efficiency, innovation, and natural asset management—principles that are reflected in our tailored ESG framework. This approach is further supported by [37], who advocate for integrating environmental, social, and governance dimensions into composite indicators to better assess economic performance in sustainability-oriented economies. Ordinary least squares (OLS) regression and an autoregressive distributed lag (ARDL) model are employed to capture immediate impacts and dynamic relationships, respectively, situating the growth analysis within Saudi Arabia’s institutional and environmental transformation agenda.

3.1. GDP Growth Within an ESG Framework

GDP growth (annual percentage change in real GDP) is the primary dependent variable, representing overall economic performance. While GDP growth alone does not directly reflect environmental or social outcomes, it remains a key indicator of output, productivity, and investment. In Saudi Arabia’s case—especially under Vision 2030’s reforms—economic growth is closely tied to structural changes in energy production, labor markets, and governance systems. To address the limitations of GDP as a lone measure of sustainable progress, we incorporate a comprehensive ESG performance index as a core independent variable. ESG indicators offer multidimensional insight into environmental quality, social inclusion, and governance effectiveness—factors critical for long-term resilience and economic diversification in a resource-dependent economy. Integrating ESG metrics with GDP allows for a more nuanced assessment of development: it helps evaluate how sustainability-oriented reforms influence macroeconomic dynamics. This approach is supported by prior studies suggesting that strong ESG performance can spur innovation, attract investment, and enhance institutional efficiency, thereby positively impacting growth [2,17,32].

3.2. Tailored ESG Framework for Saudi Arabia

To reflect Saudi Arabia’s distinct development path and sustainability priorities, we construct a country-specific ESG index that diverges from standard global templates. Given the country’s reliance on fossil fuels and its ongoing institutional reforms, a localized ESG framework allows for a more meaningful assessment of environmental, social, and governance contributions to economic growth.

The environmental dimension of the ESG index is composed of greenhouse gas emissions, weighted by carbon dioxide emissions (50%), methane emissions (25%), and nitrous oxide emissions (25%), using data from the World Bank [38] and the IEA [39]. This structure reflects Saudi Arabia’s carbon intensity and transition strategies under Vision 2030, which was officially launched in April 2016. Under the Saudi Green Initiative, the Kingdom pledged to reduce 278 million tons of CO₂ emissions annually by 2030, with a broader goal of net-zero emissions by 2060 [40]. Policies such as liquid fuel phase-out, expansion of renewables to 50% of electricity generation, and carbon capture investments underpin these targets [41,42]. According to World Bank data, CO₂ emissions per capita fell from 20.51 metric tons in 2016 to 18.73 in 2023—a 4.9% decline, which, though not a direct proxy for total national emissions, reflects meaningful progress. Supporting this, empirical evidence by [31] shows that renewable energy reforms introduced between 2019 and 2020 have significantly altered the relationships among FDI, renewable energy use, and GDP, demonstrating the structural impact of recent environmental policy efforts.

The social dimension includes indicators such as the unemployment rate, female labor force participation, tertiary education gender parity, and life expectancy. These aligned with Saudi Arabia’s Human Capability Development Program under Vision 2030, which aims to reduce structural labor market barriers and expand access to education. Studies by [28,29] reinforce the value of these tailored metrics, highlighting their relevance in capturing Saudi-specific labor dynamics and social inclusion reforms.

The governance dimension includes regulatory quality and government effectiveness, which are central to the National Transformation Program. These indicators reflect public sector transparency, efficiency, and institutional reform. Refs. [24,27] demonstrate that strong governance structures in the MENA and GCC regions directly influence the success of sustainability and diversification policies, making this dimension a crucial element of the ESG framework.

The ESG index, constructed using normalized values and weighted through principal component analysis (PCA), captures the most significant variance across indicators while remaining anchored in Saudi Arabia’s reform agenda.

This ESG framework also underpins a steady improvement trend. From 1990 to 2022, Saudi Arabia’s ESG performance has demonstrated consistent progress. The composite ESG index began to rise gradually after 2000, with a notable and sustained increase following the launch of Vision 2030 in 2016. The environmental sub-index, after a volatile performance in the 1990s, began to improve in the mid-2000s, gaining momentum with the introduction of regulatory reforms and renewable energy investments. Social indicators showed steady improvement, particularly after 2017, following institutional changes that enhanced women’s labor market access and improved education alignment. Governance scores experienced the most pronounced gains, especially after 2005, reflecting institutional modernization, anti-corruption enforcement, and digital governance.

This upward ESG trajectory, particularly after 2015, reflects coordinated national strategies such as the Saudi Green Initiative and the National Transformation Program. These institutional and policy shifts provide a strong foundation for examining whether ESG performance contributes to economic growth, a relationship that we empirically test in the subsequent analysis.

The ESG performance trends in Saudi Arabia (1990–2022) are presented in Figure 2.

Within the ESG components, distinct patterns are observed. The Environmental Index (ENV) exhibited volatility throughout the 1990s, reflecting tensions between fossil-fuel-based growth and environmental externalities. A notable mid-1990s dip in ENV likely mirrors the absence of strong environmental safeguards during rapid industrialization. From the mid-2000s onward, the ENV index began to improve, with substantial gains after 2015. This shift coincides with a series of environmental policy reforms, including intensified emissions monitoring, stricter regulatory enforcement, rising investments in solar and wind infrastructure, and Saudi Arabia’s alignment with international climate goals.

The Social Index (SOC) trended upward more consistently, especially after 2010, indicating gradual but meaningful progress in human capital development and labor force inclusivity. Reforms in employment regulation and the expansion of technical and tertiary education contributed to greater gender equity and youth participation in the workforce.

A pivotal shift occurred post-2017, with major institutional changes (e.g., removing barriers to women’s labor market participation) accelerating social progress. Strategic investments in education and workforce development also helped to reduce skill mismatches and better align the labor supply with the country’s economic diversification agenda. These improvements correspond with the broader social transformation goals of Vision 2030.

Governance indicators show the most pronounced gains among the ESG components, with improvements becoming especially visible after 2005. This trend reflects advancements in transparency, administrative efficiency, and institutional oversight. The establishment of dedicated anti-corruption agencies, stronger regulatory enforcement, and the deployment of digital government systems have collectively strengthened public sector accountability. Additionally, rising political stability and improved policy continuity in the past decade have contributed to a more predictable investment environment. These institutional improvements are likely enhancing the economy’s absorptive capacity and long-term planning.

Since 2015, improvements across the environmental, social, and governance dimensions have become more integrated and mutually reinforcing. The post-2020 surge in the overall ESG index may reflect the cumulative impact of coordinated national strategies (e.g., the National Transformation Program and the Saudi Green Initiative) and expanded public–private collaboration in infrastructure, clean energy, and institutional reform. This upward ESG trajectory strengthens the basis for the empirical analysis, suggesting that recent sustainability reforms could have tangible effects on Saudi Arabia’s economic growth.

Building on this contextual foundation, we now specify the econometric models used to examine the relationship between ESG performance and GDP growth. To isolate ESG effects, we include three key macroeconomic control variables: oil rents (% of GDP), trade openness (total trade as a share of GDP), and gross fixed capital formation (% of GDP). These controls capture Saudi Arabia’s reliance on natural resources, its engagement with international markets, and its level of domestic investment. All data are sourced from the World Bank’s World Development Indicators.

Table 1. Overview of variables: definitions, data sources, and the supporting literature.

Variable	Measurement	Data Source	Related Studies
CO2 Emissions	tCO2e/capita	World Bank IEA	Abdelkawy et al. (2024); Wang et al. (2023) [17,27]
Methane Emissions	kt of CO2 equivalent	IEA	Ho et al. (2019) [2]
Nitrous Oxide Emissions	kt of CO2 equivalent	IEA	Ali et al. (2019) [24]
Female Labor Participation	% of total labor force	World Bank	Chaaben et al. (2022); Mohd Daud et al. (2024) [28,29]
Tertiary Education Parity	Female-to-male enrollment ratio	World Bank	Mohd Daud et al. (2024) [29]
Life Expectancy	Years	WHO	Saidi et al. (2020) [32]
Government Effectiveness	Index (−2.5 to 2.5)	World Bank	Abdelkawy (2024) [27]
Political Stability	Index (−2.5 to 2.5)	World Bank	Ali et al. (2019) [24]
GDP Growth	Annual % change	World Bank	Kasztelan (2017); Wang et al. (2023) [3,17]
Oil Rents	% of GDP	World Bank	Kahia et al. (2021) [35]
Trade Openness	% of GDP	World Bank	Saidi et al. (2020) [32]
Gross Fixed Capital Formation	% of GDP	World Bank	Kasztelan (2017); Hammer et al. (2011) [3,14]

summarizes the full set of variables used in the analysis, along with definitions, data sources, and the supporting literature.

We estimate three econometric models to assess the relationship between ESG indicators and economic growth. The first model applies ordinary least squares (OLS) using disaggregated ESG indices—environmental, social, and governance—as independent variables:

GDPGrowth_t = α + β₁ENV_t + β₂SOC_t + β₃ GOV_t + β₄OilRent_t + β₅TradeOpen_t + β₆GFCF_t + ϵ_t

To test the joint impact of ESG dimensions, the second model replaces the individual ESG indicators with a composite ESG score. This specification helps evaluate whether integrated ESG performance has a stronger or more consistent relationship with GDP growth:

GDPGrowth_t = α + β₁ESGScore_t + β₂OilRent_t + β₃TradeOpen_t + β₄GFCF_t + ϵ_t

Finally, to capture both short- and long-term dynamics, the third model applies an autoregressive distributed lag (ARDL) approach. This model is particularly useful for assessing equilibrium relationships over time and accounting for the temporal structure of the data:

GDPGrowth_t = α + ∑_(i=1)^p β_i·GDPGrowth_t−i + ∑_(j=0)^q γ_j·ESG_t−j + ∑_(k=0)^r δ_k·Controls_t−k + ε_t

We tested for stationarity using ADF tests, cointegration via ARDL bounds testing, multicollinearity through VIF, autocorrelation via Breusch–Godfrey LM tests, and heteroscedasticity using Breusch–Pagan. These diagnostics confirm the reliability of the model estimates.

Finally, this methodological framework supports policy evaluation by linking ESG reforms—such as emissions reduction and gender inclusion—to measurable macroeconomic outcomes. In the context of Saudi Arabia’s Vision 2030, the models are designed to provide empirical evidence on whether sustainability-oriented reforms contribute to long-term economic transformation in a resource-dependent economy.

4. Results

This section presents the descriptive statistics, correlation analysis, and regression results for the relationship between ESG performance and economic growth in Saudi Arabia from 1990 to 2022.

4.1. Descriptive Statistics

Historical ESG performance trends—outlined in the Methodology section—show consistent improvements across environmental, social, and governance dimensions, particularly after the launch of Vision 2030 in 2016. These patterns support the rationale for empirically testing the economic implications of ESG integration.

Descriptive statistics (

Table 2. Descriptive statistics.

Variable	Obs	Mean	Std. Dev.	Min	Max
GDP Growth (%)	33	3.637	4.717	−3.763	15.193
Environmental Index (ENV)	33	−0.002	0.001	−0.004	−0.001
Social Index (SOC)	33	0	0.001	−0.001	0.001
Governance Index (GOV)	33	0	0.001	−0.002	0.003
Composite ESG Score	33	−0.002	0.003	−0.006	0.003
Oil Rents (% of GDP)	33	34.002	10.402	15.979	54.086
Trade Openness (% of GDP)	33	52.136	12.651	31.658	75.092
Gross Fixed Capital Formation (% of GDP)	33	21.493	2.982	17.309	29.356

) provide an overview of Saudi Arabia’s macroeconomic profile and ESG-related indicators over the period 1990–2022. The average annual GDP growth rate was about 3.64%, reflecting moderate expansion amid cyclical fluctuations largely shaped by global oil markets. Oil rents averaged 34.00% of GDP, underscoring the economy’s dependence on fossil fuel revenues. Trade openness (52.14%) and gross fixed capital formation (21.49%) reflect increased global integration and stable investment levels, which are central to the country’s diversification strategy. As illustrated in Figure 2, the steady rise in ESG scores during this period signals a gradual institutionalization of sustainability within national policy, laying the groundwork for the regression analysis that follows.

4.2. Correlation Analysis

The correlation matrix in

Table 3. Correlation matrix (1990–2022).

Variables	GDP	ENV	SOC	GOV	ESG Score	Oil	Trade	GFCF
GDP	1.000
ENV	0.022	1.000
SOC	−0.058	0.819	1.000
GOV	−0.067	0.729	0.790	1.000
ESG Score	−0.041	0.900	0.915	0.943	1.000
Oil	0.403	−0.119	−0.257	−0.441	−0.327	1.000
Trade	0.179	−0.848	−0.924	−0.758	−0.890	0.220	1.000
GFCF	−0.073	0.726	0.664	0.673	0.744	−0.194	−0.708	1.000

provides insight into the relationships between GDP growth, ESG dimensions, and structural economic variables in Saudi Arabia. GDP growth shows a weak positive correlation with the Environmental Index (r = 0.022), suggesting limited short-term economic returns from environmental reforms. Similarly, the composite ESG score is slightly negatively correlated with GDP growth (r = −0.041), indicating that ESG improvements may yield long-term rather than immediate benefits. Oil rents are moderately positively correlated with GDP growth (r = 0.403), underscoring continued dependence on fossil fuel revenues, while their negative correlation with the Governance Index (r = −0.441) points to potential governance risks associated with resource reliance. Trade openness is weakly positively correlated with GDP growth (r = 0.179), but shows a strong negative correlation with environmental performance (r = −0.848), reflecting the environmental trade-offs associated with industrial expansion and export activity.

The following regression analysis provides a more rigorous test of the ESG–growth relationship, accounting for dynamic interactions and long-run effects beyond these preliminary correlations.

4.3. Regression Analysis

To formally assess the impact of ESG performance on economic growth, two OLS regression models were estimated, followed by an ARDL model to capture long-run dynamics. Model 1 includes the individual ESG indices—environmental (ENV), social (SOC), and governance (GOV)—as separate regressors, while Model 2 uses a composite ESG score.

In Model 1, none of the individual ESG dimensions has a statistically significant short-term effect on GDP growth (

Table 4. Model 1 OLS regression results (individual ESG indices).

Variable	Coefficient	Std. Error	t-Statistic	p-Value	95% Confidence Interval
ENV	2002.664	1884.409	1.06	0.298	−1870.80; 5876.123
SOC	5058.383	3432.652	1.47	0.153	−1997.53; 12,114.30
GOV	946.2306	1108.295	0.85	0.401	−1331.90; 3224.365
Oil Rent	0.211717	0.084618	2.50	0.019	0.03778; 0.3856519
Trade	0.433539	0.172064	2.52	0.018	0.079857; 0.787222
GFCF	−0.04825	0.388776	−0.12	0.902	−0.847395; 0.750887
Constant	−19.4376	13.63868	−1.43	0.166	−47.47227; 8.597158

). The coefficients for ENV (β = 2002.66, p = 0.298), SOC (β = 5058.38, p = 0.153), and GOV (β = 946.23, p = 0.401) are all positive, but not significant at conventional levels. These results suggest that environmental, social, and governance reforms in isolation have not yet translated into measurable short-term economic gains.

By contrast, Model 2 shows that the composite ESG score is positively and statistically significantly associated with GDP growth (β = 1714.58, p = 0.022;

Table 5. Model 2 OLS Regression results (composite ESG score).

Variable	Coefficient	Std. Error	t-Statistic	p-Value	95% Confidence Interval
ESG Score	1714.577	707.5391	2.42	0.022	265.2488; 3163.905
Oil Rent	0.2295097	0.0757773	3.03	0.005	0.074287; 0.3847325
Trade	0.3155186	0.1303072	2.42	0.022	0.0485965; 0.5824408
GFCF	−0.1009983	0.3731074	−0.27	0.789	−0.8652743; 0.6632776
Constant	−14.43447	11.323	−1.27	0.213	−37.62858; 8.759646

). Given the scale of the ESG index—ranging approximately from −0.006 to 0.003—this coefficient implies that a 0.001-point improvement in the composite ESG score is associated with an estimated 1.71 percentage point increase in annual GDP growth. This finding supports the hypothesis that integrated ESG strategies yield stronger long-term growth outcomes than disjointed or narrowly focused reforms.

Traditional economic variables remain significant drivers of growth across both models. Oil rents (Model 1: β = 0.21, p = 0.019; Model 2: β = 0.23, p = 0.005) and trade openness (Model 1: β = 0.43, p = 0.018; Model 2: β = 0.32, p = 0.022) are positively associated with GDP growth, reaffirming Saudi Arabia’s continued reliance on fossil fuel revenues and external trade to support short-term economic outcomes.

The regression models show that traditional economic variables—particularly oil rents and trade openness—remain significant drivers of GDP growth. In both OLS specifications (Table 4 and Table 5), oil rents and trade openness have positive and statistically significant effects on growth, reaffirming Saudi Arabia’s continued reliance on fossil fuel revenues and external trade for short-term economic performance. These findings highlight the dual nature of the country’s economic transition: while ESG reforms are gradually taking root, immediate growth outcomes are still shaped by the legacy structure of a resource-based economy.

Together, the results emphasize that ESG initiatives, though promising for long-run sustainability, must be institutionalized more rapidly and systematically to reduce structural dependence on hydrocarbons. Achieving this shift is essential to building the foundations of a more inclusive, diversified, and environmentally resilient economy in line with Vision 2030 goals.

To validate the reliability of the OLS regression estimates, we conducted standard diagnostic checks. The results confirm no serious econometric issues. Specifically, multicollinearity was not present, as all variance inflation factor (VIF) values were below the commonly accepted threshold of 10 (

Table 6. VIF for multicollinearity.

Variable	VIF	1/VIF
ESG Score	6.03	0.1659
Trade Openness	5.05	0.1981
GFCF	2.30	0.4351
Oil Rent	1.15	0.8667
Mean VIF	3.63

). The Breusch–Godfrey LM test showed no significant autocorrelation (p = 0.2088), and the Breusch–Pagan test confirmed homoscedasticity (p = 0.3070), indicating constant variance of residuals (

Table 7. Breusch–Godfrey test for autocorrelation.

Test	Model 1	Model 2
Chi2	1.580	0.879
Prob > Chi2	0.2088	0.3485

). These findings collectively support the robustness of the model specification and increase confidence in the estimated relationship between ESG performance and GDP growth.

To ensure robust inference given the mix of stationary and non-stationary variables in the dataset, an autoregressive distributed lag (ARDL) model was also estimated. The Augmented Dickey–Fuller (ADF) tests showed that GDP growth is stationary at level [I(0)], while the ESG score, oil rents, trade openness, and gross fixed capital formation (GFCF) are integrated of order one [I(1)] (see

Table 8. ADF test results at level.

Variable	Test Statistic	1% CV	5% CV	10% CV	p-Value	Stationarity at Level
GDP	−4.645	−3.702	−2.980	−2.622	0.0001	Stationary
ESG Score	−0.090	−3.702	−2.980	−2.622	0.9505	Not stationary
Oil Rent	−2.174	−3.702	−2.980	−2.622	0.2160	Not stationary
Trade	−0.755	−3.702	−2.980	−2.622	0.8321	Not stationary
GFCF	−1.859	−3.702	−2.980	−2.622	0.3515	Not stationary

and

Table 9. ADF Test Results after first difference.

Variable	Test Statistic	1% CV	5% CV	10% CV	p-Value	Stationarity After 1st Difference
ESG Score (Δ)	−8.721	−3.709	−2.983	−2.623	0.0000	Stationary
Oil Rent (Δ)	−6.203	−3.709	−2.983	−2.623	0.0000	Stationary
Trade (Δ)	−6.532	−3.709	−2.983	−2.623	0.0000	Stationary
GFCF (Δ)	−6.135	−3.709	−2.983	−2.623	0.0000	Stationary

). These results validate the use of the ARDL approach, which is suitable for analyzing both short-run and long-run relationships in models with variables of mixed integration orders.

The ARDL results confirm that the growth benefits of ESG integration primarily materialize in the long run. The error correction term is significant and negative (−1.006, p < 0.001), indicating a strong and rapid adjustment back to equilibrium following short-run shocks. The long-run coefficient on the composite ESG score is positive and statistically significant (β = 3375.85, p = 0.021;

Table 10. ARDL regression results (long-run and short-run estimates).

Variable	Coefficient	Std. Error	t-Statistic	p-Value	95% Confidence Interval
Adjustment Term
GDP Growth (L1)	−1.0064	0.1646	−6.11	0.000	[−1.3487, −0.6641]
Long-Run Coefficients
ESG Score	3375.8470	1357.8430	2.49	0.021	[552.057, 6199.637]
Oil Rents	0.3408	0.1594	2.14	0.045	[0.0092, 0.6723]
Trade Openness	0.0471	0.2789	0.17	0.868	[−0.5330, 0.6271]
GFCF	0.3102	0.5695	0.54	0.592	[−0.8741, 1.4945]
Short-Run Coefficients
Δ ESG Score	−1553.6940	872.6476	−1.78	0.089	[−3368.464, 261.076]
Δ Oil Rents	−0.0512	0.1029	−0.50	0.624	[−0.2653, 0.1629]
Δ Trade Openness	−0.1101	0.1781	−0.62	0.543	[−0.4806, 0.2603]
Δ GFCF	−0.1081	0.3893	−0.28	0.784	[−0.9176, 0.7014]
Constant	2.1950	0.8947	2.45	0.023	[0.3344, 4.0557]

), reinforcing the conclusion that sustained improvements in ESG performance contribute to higher economic growth over time. In contrast, short-run changes in ESG performance are not statistically significant, consistent with the OLS findings. These results underscore that the benefits of ESG reforms unfold gradually and are best evaluated within a multi-year perspective, which is aligned with the long-term orientation of strategic frameworks like Vision 2030.

4.4. Model Comparison and Robustness

To assess the robustness and comparative performance of the regression models, we evaluated key model fit statistics across the OLS and ARDL specifications. As shown in

Table 11. Model fit metrics for OLS regression models.

Metric	Model 1	Model 2
Number of Observations	33	33
R-squared	0.3510	0.3223
Adjusted R-squared	0.2013	0.2255
F-statistic	2.34	3.33
Prob > F	0.0608	0.0238
Root MSE	4.2153	4.1510

, the OLS models provide moderate explanatory power: Model 1 (individual ESG indices) yields an R-squared of 0.3510, while Model 2 (composite ESG score) shows a slightly lower R-squared of 0.3223. In contrast,

Table 12. Model fit metrics for ARDL model.

Metric	ARDL Model
Number of Observations	31
R-squared	0.7473
Adjusted R-squared	0.6390
Log-likelihood	−74.947339
Root MSE	3.2984
F-statistic (for ARDL Bounds)	8.790
t-statistic (for ARDL Bounds)	−6.114

demonstrates that the ARDL model performs substantially better, with an R-squared of 0.7473 and an Adjusted R-squared of 0.6390, indicating that nearly 64% of the variation in GDP growth is explained by the model. The ARDL specification also results in a lower root mean square error (RMSE) of 3.2984 and a stronger log-likelihood value, confirming its superior statistical fit for time series data with mixed integration properties. These metrics reinforce the methodological suitability and robustness of the ARDL approach in capturing the long-run dynamics between ESG performance and economic growth.

5. Discussion

The results of this study provide important theoretical and policy insights into the relationship between ESG performance and economic growth in Saudi Arabia from 1990 to 2022. Three key themes emerge: (1) the long-run benefits of ESG integration, (2) the superior explanatory power of the composite ESG index, and (3) the policy implications for oil-dependent economies undergoing structural reform.

These patterns underscore the long-term nature of Saudi Arabia’s sustainability transition and the importance of persistent institutional efforts to achieve Vision 2030 targets. This aligns with the prior literature noting that environmental policies often deliver delayed economic benefits, especially in a fossil fuel–dependent context [3,12].

Correlation analysis further supports this view. Oil rents show a moderate positive correlation with GDP growth but a negative association with governance, illustrating the resource curse dynamic and suggesting that continued oil reliance may weaken institutional quality [14]. Additionally, trade openness is positively correlated with GDP growth but strongly negatively correlated with environmental performance, pointing to trade-offs between industrial activity and environmental goals. These findings reflect the structural challenges of transitioning to a sustainability-aligned economy.

Regression results confirm that the growth benefits of ESG performance are more likely to materialize in the long run. The composite ESG index shows a positive and statistically significant relationship with GDP growth in OLS Model 2 and in the ARDL long-run estimates, supporting Hypotheses 2 and 3. These results suggest that integrated sustainability reforms contribute to economic resilience more effectively than fragmented or short-term efforts. In contrast, short-run changes in ESG indicators—including in the ARDL model—are not statistically significant, highlighting the delayed returns from environmental initiatives, social investments, and governance reforms, consistent with prior studies [2,4,9,13,32].

The weak and non-significant results for the disaggregated ESG pillars in Model 1 support Hypothesis 1. Individually, the ENV, SOC, and GOV variables do not explain short-term growth. This suggests that reforms in isolation may lack the synergy needed to trigger broad economic transformation. Model 2, however, demonstrates that the composite ESG index has a significant impact, reinforcing the advantage of coordinated policy approaches. This finding aligns with [33] and supports the Brundtland Commission’s view that sustainability requires joint progress across environmental, social, and governance domains.

The ARDL model further strengthens these conclusions. It confirms a significant long-run effect of ESG integration (β = 3375.85, p = 0.021) and shows a strong, negative error correction term (−1.006, p < 0.001), indicating rapid adjustment toward equilibrium after short-run shocks. This supports Vision 2030’s emphasis on institutionalizing reform over time rather than expecting immediate payoffs.

At the same time, traditional growth drivers—particularly oil rents and trade openness—remain central to Saudi Arabia’s economic performance in the short run. This reinforces the duality of the transition path: while sustainability reforms are gaining momentum, near-term outcomes are still shaped by hydrocarbon reliance and global trade. Bridging this gap requires the gradual institutionalization of ESG frameworks to reduce structural dependence on oil while reinforcing inclusive and resilient growth pillars.

Importantly, these findings suggest that ESG integration must be structural, not symbolic. Governance improvements should support environmental policy enforcement; social development must enhance the impact of broader economic reforms. ESG pillars, when aligned and implemented together, produce more durable and impactful growth outcomes than when pursued in isolation.

Finally, in relation to the existing literature, this study supports the findings in [14], which report a generally positive ESG–performance relationship, and [8], which emphasizes ESG’s strategic value in emerging markets. The observed ESG–governance interaction also aligns with [9], which highlights the role of institutional quality in moderating sustainability outcomes. Model 1 results confirm Hypothesis 1, while Model 2 and ARDL results confirm Hypotheses 2 and 3. Collectively, the evidence demonstrates that ESG integration—when aligned with long-term national goals like Vision 2030—can promote diversified, sustainable growth and provide a replicable model for other resource-based economies.

Policy Implications and Recommendations

This study provides key insights for Saudi Arabia’s transition toward sustainable economic growth under Vision 2030. Theoretically, the findings support stakeholder theory and sustainability transition theory by confirming that environmental, social, and governance (ESG) integration can significantly enhance long-term economic resilience when implemented as part of a coordinated national framework. Although environmental reforms alone have not produced short-term growth gains, their cumulative effect—when combined with improvements in governance and social inclusion—supports structural diversification.

Policymakers should maintain long-term commitment to environmental targets by ensuring regulatory stability and providing incentives that attract private-sector investment in renewables and clean technologies. Abrupt policy shifts may hinder progress and deter participation in the green transition.

The strong results associated with the composite ESG index emphasize the value of a holistic policy strategy. Rather than pursuing isolated reforms, integrating governance quality, labor market inclusion, and environmental stewardship can generate synergies that improve economic performance. This calls for better coordination between ministries and agencies involved in social, environmental, and institutional reform.

Practically, this implies that ESG alignment with Vision 2030 is not symbolic; it fosters regulatory learning, encourages investment, and accelerates sectoral innovation, particularly in clean energy and institutional modernization. ESG integration also supports institutional learning and cross-sector innovation. Embedding ESG metrics in planning and investment decisions enables knowledge sharing and strengthens regulatory adaptation. Building platforms that connect government, academia, and industry can help disseminate best practices and encourage sustainability-led innovation.

The continued reliance on oil revenues remains a constraint. To build a more resilient economy, diversification should focus on ESG-aligned sectors such as clean energy, digital technologies, and sustainable manufacturing. These areas are better suited to long-term growth in a post-carbon global economy.

Saudi Arabia should also align its ESG policies with international standards. Engaging in global ESG initiatives and green finance frameworks can enhance credibility, attract investment, and support knowledge transfer from more advanced sustainability regimes. As [43] emphasized, the GRI standards serve as a foundation for consistent sustainability reporting and policy integration, especially in economies seeking to institutionalize ESG performance in national development strategies.

Finally, robust ESG governance is essential. Strengthening institutional capacity, regulatory accountability, and public sector skills will ensure that ESG adoption is not symbolic but is embedded in day-to-day policymaking. This alignment between policy intent and implementation is key to ensuring the longevity and effectiveness of Saudi Arabia’s economic transformation.

6. Conclusions

This study examined the relationship between ESG performance and economic growth in Saudi Arabia from 1990 to 2022, using a customized ESG framework aligned with national development priorities. Unlike standard global ESG indices, the proposed model captures localized dimensions—such as emissions control, labor market inclusion, and institutional reform—making it more relevant for resource-dependent economies undergoing transition. By developing this context-specific ESG index for Saudi Arabia, the research fills a gap in the literature and offers a novel approach for evaluating sustainability in line with national priorities.

Empirical results from the OLS and ARDL models provide several key insights. While the individual ESG pillars (environmental, social, and governance) did not show statistically significant short-term effects on GDP growth, their integration—as measured by the composite ESG index—has a strong, significant positive relationship with long-term economic performance. This finding underscores the value of an integrated sustainability strategy. In other words, ESG adoption structured as a cohesive policy agenda (rather than isolated reforms) contributes meaningfully to macroeconomic resilience and structural diversification over time. These integrated efforts appear to function not merely as compliance measures but as strategic levers for structural reform and long-run economic resilience.

These results affirm the theoretical framework linking ESG to macroeconomic outcomes. They support the hypothesis that sustainability transitions require integrated reform across environmental, institutional, and social dimensions, echoing key premises of institutional economics and stakeholder theory.

Building on these findings, the results suggest clear policy implications. There is a need for sustained, coordinated ESG strategies that simultaneously advance environmental goals, social development, and governance reforms. In practical terms, long-term investment in renewable energy, labor market reforms, and institutional quality should be pursued as part of a comprehensive ESG framework. Aligning ESG metrics with Saudi Arabia’s Vision 2030 initiatives can help track reform progress and attract investment, while also bolstering the country’s credibility in global sustainability discourse. Such coordination ensures that environmental targets, governance modernization, and social inclusion efforts are mutually reinforcing rather than piecemeal.

From a practical standpoint, this research offers policymakers a replicable model to embed ESG integration into national strategy, helping transform reform commitments into measurable outcomes that support diversified, sustainable growth.

Beyond policymaking, this study contributes to the academic literature by demonstrating that ESG frameworks can serve not only as monitoring tools but also as catalysts for economic transformation, particularly in natural resource-reliant economies. The strong predictive power of the composite ESG score supports the broader theoretical argument that sustainable development requires concurrent progress in environmental integrity, social equity, and governance effectiveness. In this way, the research provides new empirical evidence that integrating the ESG pillars can drive macroeconomic transformation, not just mirror it.

However, several limitations must be acknowledged. First, the study uses GDP as the sole proxy for economic performance, which may not fully capture improvements in social welfare or environmental quality. Future research could address this by incorporating alternative metrics—such as green GDP, human development indices, or other sustainability-adjusted growth measures—to provide a more holistic view of progress. Second, the ESG framework developed here is tailored to Saudi Arabia; applying this framework to other Gulf countries or resource-based economies would help test its external validity and generalizability. Finally, from a methodological perspective, future studies could benefit from using causal inference techniques or higher-frequency/panel data to more precisely explore the timing and transmission mechanisms of ESG impacts on growth.

In conclusion, this research provides empirical evidence and practical insights into how ESG integration—when tailored to a nation’s specific context—can support long-term economic goals. The study’s results hold both theoretical and practical relevance: theoretically, they validate frameworks linking sustainability transitions to macroeconomic performance; practically, they offer a tool for tracking reform progress and guiding policy design. The findings reinforce the importance of aligning ESG policies with institutional reform, clean energy transition, and social inclusion as a holistic approach to sustainable growth. Such alignment is crucial for advancing Saudi Arabia’s Vision 2030 and its broader sustainable development objectives, illustrating that context-driven ESG strategies can be a powerful engine for both economic resilience and transformative change.