Economic Policy Uncertainty and the Pursuit of Business Sustainability

Abstract

Policy shifts are inevitable and often unpredictable, introducing uncertainty that influences individual and organizational decision-making. This uncertainty spans political, social, and economic domains, frequently reflecting recent events or anticipated developments. Economic policy changes, in particular, can destabilize markets, leading to heightened volatility and shifting correlations in stock prices. When governments introduce new policies or alter existing ones, the resulting uncertainty significantly impacts the financial and operational strategies of businesses.
Baker and colleagues developed the Economic Policy Uncertainty (EPU) index as a comprehensive proxy to measure this uncertainty. Their findings suggest that EPU profoundly affects both microeconomic and macroeconomic factors. For businesses striving for sustainability, this volatile environment presents unique challenges and opportunities. Firms must navigate the dual pressures of adapting to evolving policy landscapes while maintaining long-term sustainability goals.
This study explores the complex relationship between economic policy uncertainty and sustainable business practices. By analysing the effects of EPU on decision-making processes, investment patterns, and operational strategies, the research highlights how businesses can mitigate risks and leverage uncertainty as a driver for innovation and resilience. Understanding these dynamics provides critical insights for policymakers and organizations aiming to foster sustainable development in an unpredictable economic environment