Nash Equilibria: New Research Reveals Why Social ESG Matters Most for Hospitality Companies

It is tempting to believe that in times of turbulence, companies with strong sustainability credentials have an inbuilt compass pointing them towards safer shores. But global events over the past decade have made the seas rougher and the fog thicker.

From the pandemic’s shockwaves to geopolitical conflicts and shifting trade alignments, the policy environment has grown more unpredictable. For hospitality companies, whose fortunes often hinge on travellers’ confidence and discretionary spending, this unpredictability is especially punishing.

In “The Impact of Economic Policy Uncertainty and ESG Reporting on Financial Performance of Hospitality Companies” (Business Strategy and the Environment, June 2025), researchers Samta Jain and Aditya Banerjee set out to test a deceptively simple question that when economic policy uncertainty rises, does a company’s environmental, social and governance, or ESG, performance help cushion the financial blow? Their findings offer a nuanced answer and challenge the assumption that all pillars of ESG are equal in turbulent times.

The authors frame their work in a decade marked by disruption. The Covid-19 pandemic, the Russia-Ukraine War and trade tensions between the US and China have been accompanied by a series of regulatory and fiscal interventions that businesses must navigate. These shifts, sudden and sometimes contradictory, create what economists call economic policy uncertainty (EPU), a fog that makes corporate decision-making harder and riskier.

The hospitality sector, with its reliance on discretionary consumer spending and long planning cycles, is acutely exposed. When uncertainty is high, individuals defer travel, events are postponed and investment projects are shelved. Against this backdrop, ESG practices are often promoted as a buffer, signalling long-term stability and ethical stewardship. Jain and Banerjee check whether that buffer holds under real-world turbulence.

Not A Buffer

The research uses a dataset of 51 publicly listed hotel and entertainment companies from 14 developed countries between 2013 and 2022. To track performance, they looked at three measures: how efficiently the companies used their assets, that is, return on assets (ROA), how much profit they made for shareholders, that is, return on equity (ROE), and how the stock market valued them (Tobin’s Q). EPU was measured using a widely recognised global index.

The first finding, without leaving any doubt, reveals that EPU hurts. Across ROA, ROE and Tobin’s Q, higher policy uncertainty correlates with lower performance. For accounting-based measures like ROA and ROE, the effect persists into the following year, suggesting that uncertainty leaves a lasting dent. Interestingly, Tobin’s Q, a market-based valuation, tends to recover more quickly, hinting that investors may treat policy turbulence as temporary even when fundamentals remain weak.

The second finding is more surprising. At the aggregate level, high ESG scores do not reliably cushion the blow of EPU. Nor do strong environmental or governance scores offer much insulation. The one clear exception is the social pillar. Firms with high social scores, indicating strong employee relations, diversity and community engagement experience significantly less performance erosion when policy uncertainty spikes.

The outsized role of the social pillar challenges much ESG orthodoxy. In a sector where service quality, customer experience and adaptability are rooted in human capital, how a company treats its people can determine its resilience. Loyal, motivated employees may be more willing to adapt to operational changes, maintain service standards and innovate under pressure.

This aligns with earlier studies showing that social capital of trust, shared norms and networks can act as a stabiliser in volatile environments. But Jain and Banerjee’s work adds empirical weight to the argument in a global hospitality context, showing that social initiatives are not just “soft” strategies but measurable performance stabilisers.

Difficult Implications

The results should give pause to both policymakers and corporate leaders. For one, they complicate the idea that ESG, as a bundled concept, is a universal hedge against turbulence. Regulators pushing for broad ESG disclosures may need to acknowledge that resilience benefits are not evenly distributed across the pillars.

For executives, the message is even sharper. In hospitality, social investments such as employee welfare programmes, diversity initiatives, fair pay and community engagement appear to offer more tangible protection against uncertainty than environmental or governance reforms alone. That does not mean that the latter are unimportant, but it does suggest that a one-size-fits-all ESG strategy may miss the resilience sweet spot.

For investors, the findings are a caution against reading high ESG scores as a blanket indicator of lower risk. Understanding the composition of those scores, especially the social pillar, could make the difference between picking a company that weathers policy shocks and one that falters.

For governments, the research highlights the cost of policy volatility in sectors like hospitality. While policy change is often necessary, predictability and clear communication can reduce the uncertainty tax on industries that rely on long booking horizons and heavy capital investment.

Ultimately, the research is not an argument against ESG, but for precision in how it is applied. Jain and Banerjee show that in a world of persistent uncertainty, not all sustainability investments are equal and that the human side of the ESG equation may be the most valuable currency of all.

For a sector built on experiences, relationships and trust, that may be the most actionable finding of all.