Search Results (59)

This study examines the degree of alignment between the actual environmental performance and the ESG disclosures of 365 listed financial institutions in Europe for the fiscal year 2024. Although ESG reporting has become a standard practice in the financial sector, there are still concerns that the quality of the disclosure may not accurately reflect substantive environmental action, which increases the risk of greenwashing. This study addresses this issue by incorporating both ESG disclosure indicators and green accounting metrics into a multi-criteria decision-making framework. This framework is supported by entropy-based weighting to assure objectivity in criterion importance, as outlined in the PROMETHEE II method. The Greenwashing Risk Index (GWI) is a groundbreaking innovation that quantifies the discrepancy between an institution’s classification based on ESG transparency and its performance in green accounting indicators, including environmental penalties, provisions, and resource usage. The results indicate that there is a substantial degree of variation in the performance of ESGs among institutions, with a significant portion of them exhibiting high disclosure scores but insufficient environmental substance. These discrepancies indicate that reputational sustainability may not be operationally sustained. The results have significant implications for regulatory supervision, sustainable finance policy, and ESG rating methodologies. The framework that has been proposed provides a replicable, evidence-based tool for identifying institutions that are at risk of greenwashing and facilitates the implementation of more accountable ESG evaluation practices in the financial sector. Full article

The impact of Environmental, Social, and Governance (ESG) scores on financial performance remains a subject of debate, as the literature reports mixed evidence regarding their effect on stock returns. This research aims to examine the relationship between ESG ratings and the change in ESG scores, or ESG Momentum, concerning both returns and risk of a large sample of stocks traded on U.S. exchanges. The study examined a sample of 3856 stocks traded on U.S. exchanges, considering 20 years of quarterly data from December 2002 to December 2022. We applied multi-factor models and tested them through pooled ordinary, fixed effects, and random effects panel regression methods. Our results show negative relationships between ESG scores and stock returns and between ESG Momentum and volatility. Contrarily, we find positive associations between ESG Momentum and returns and between ESG scores and volatility. Although high ESG scores are generally associated with lower long-term stock returns, an increase in a company’s ESG rating tends to translate into immediate positive returns and reduced risk. Accordingly, investors may benefit from strategies that focus on companies actively improving their ESG performance, while firms themselves stand to gain by signaling continuous advancement in ESG-related areas. Full article

In today’s volatile market environment, supply chain management (SCM) must address complex challenges such as fluctuating demand, fraud, and delivery delays. This study applies machine learning techniques—Extreme Gradient Boosting (XGBoost) and Recurrent Neural Networks (RNNs)—to optimize demand forecasting, inventory policies, and risk mitigation within a unified framework. XGBoost achieves high forecasting accuracy (MAE = 0.1571, MAPE = 0.48%), while RNNs excel at fraud detection and late delivery prediction (F1-score ≈ 98%). To evaluate models beyond accuracy, we introduce two novel metrics: Cost–Accuracy Efficiency (CAE) and CAE-ESG, which combine predictive performance with cost-efficiency and ESG alignment. These holistic measures support sustainable model selection aligned with the ISO 14001, GRI, and SASB benchmarks; they also demonstrate that, despite lower accuracy, Random Forest achieves the highest CAE-ESG score due to its low complexity and strong ESG profile. We also apply SHAP analysis to improve model interpretability and demonstrate business impact through enhanced Customer Lifetime Value (CLV) and reduced churn. This research offers a practical, interpretable, and sustainability-aware ML framework for supply chains, enabling more resilient, cost-effective, and responsible decision-making. Full article

The recent debate on Environmental, Social, and Governance (ESG) factors has focused primarily on financial decision making and risk management from the perspectives of developed economies. However, in most developing countries, ESG risk models for mortgage lenders are very limited. In most of these countries, ESG-rating providers employ widely varying methodologies and disclosure policies, often resulting in divergent assessments of the same organization. This research develops a pilot statistical-analysis, dual-horizon ESG risk model specific to the Mexican mortgage industry, which provides a better understanding of how ESG risk could evolve over time across financial, operational, regulatory, and reputational dimensions in Mexico. This dual-horizon ESG framework considers a two-year short-term risk assessment and a ten-year long-term risk assessment. This research integrates expert opinions with a scoring system that improves on traditional methods. Dependability and internal consistency are tested using the Intraclass Correlation Coefficient (ICC) and Cronbach’s alpha. Radar chart visualization and cluster analysis are used to visualize the empirical results. The empirical findings show that environmental risk has strong temporal effects, and the perceived severity is 20% higher over the longer time horizon. Furthermore, social risk exhibits high variability, identifying it as a critical risk for financial stability and regulatory compliance. Cluster analysis identifies systematic patterns in expert opinions that determine two groups, making the qualitative findings derived from radar plots more robust. Group 0 (75% of experts) has an institutional view about ESG risks. Group 1 (25% of experts) aligns with an affiliation to large financial institutions. Finally, this research identifies three key sustainability challenges for the mortgage sector in Mexico: exposure to climate-induced stress, fragmented regulatory frameworks, and social inequality. Full article

Results of studies have varied significantly regarding the effect of ESG investment on firm value. This paper weighs in on this issue by analyzing how changes in ESG scores impact excess stock market returns (alpha) and risk-adjusted returns (Sharpe ratio). We also analyze the differential impact of ESG investments on financial performance among US manufacturing and banking firms. Using quantile regression analysis, our results show a nonlinear relationship, characterized by a U-shaped relationship between ESG ratings and alpha but an inverted U-shaped relationship between ESG and the Sharpe ratio. These findings, along with results pertaining to the impact of ESG components, help explain conflicts in the literature regarding the effect of ESG investment on firm value. Full article

Integrated Reporting (IR) has gained prominence as a comprehensive approach to corporate disclosure, yet theoretical clarity is still developing regarding how governance mechanisms shape IR quality and its relation to ESG risk ratings. Addressing this gap, this study explores the influence of board and audit committee characteristics on IR quality and whether an improved IR quality is associated with a lower ESG risk. Drawing on different theories, this research examines how governance structures enhance transparency and accountability in line with societal expectations. Based on panel data from 158 firms across four years (2019–2022), a random effects Panel EGLS regression model is employed along with an endogeneity check. Findings show that board independence and the presence of women members significantly enhance the IR quality, while board size is not a determining factor. Similarly, audit committee independence and meeting frequency positively influence the IR quality, whereas committee size does not. Furthermore, firms with a higher IR quality demonstrate significantly lower ESG risk scores. These results underscore the theoretical proposition that effective governance improves disclosure credibility and reduces information asymmetry. This study suggests that reinforcing board independence and diversity can enhance reporting quality and stakeholder trust, offering a strategic path toward more sustainable and transparent corporate behavior. Full article

In this paper, we propose a linear factor model that incorporates investor preferences toward sustainability to analyze indirect effects that climate concerns may have on asset prices. Our approach is based on the relationship between environmental, social, and governance (ESG) investing and climate change considerations by investors. We use ESG scores as a part of the information set used by investors to determine the unconditional version of the conditional capital asset pricing model (CAPM). Our results show that the ESG score allows the linearized version of the conditional CAPM to greatly outperform the classic CAPM and the Fama–French three-factor model for different sorts of stock portfolios, contributing significantly to reducing pricing errors. Furthermore, we find a negative price of risk for stocks that covary positively with ESG growth, which suggests that green assets may perform better than brown ones if ESG concerns suddenly become more pressing over time. Thus, our paper constitutes a step forward in the attempt to shed light on how climate change is priced regardless of the climate risk measure used. Full article

This study employs the TVP-VAR-BK-DY spillover index model to investigate the risk spillover effects between China’s carbon emission trading system (ETS) pilots and A-share listed emission-regulated enterprises. The findings reveal that, due to the nascent stage of China’s carbon market, the overall risk spillover level within the “carbon-stock” system remains low; however, dynamic risk spillovers have shown an upward trend driven by the advancement of ETS pilots. In particular, during compliance periods, enterprises that exceed their emission limits must purchase sufficient allowances on the carbon trading market to avoid high penalties for non-compliance. This creates substantial demand, which drives a rapid increase in the spot prices of carbon allowances, triggering intense short-term price fluctuations and risk spillovers—a pronounced “compliance-driven trading” effect. Frequency domain analysis indicates that long-term shocks have a significantly greater impact on the market than short-term oscillations, reflecting moderate information processing efficiency within the “carbon-stock” system. Directional spillover analysis shows that A-share enterprises initially absorb risks from the carbon market in the short term, but over the long term, they transmit part of these risks back to the carbon market, forming a significant bidirectional risk transmission relationship. Furthermore, heterogeneity analysis reveals marked differences in risk spillover contributions among firms associated with different ETS pilots, as well as between enterprises with polluting behaviors and those with high ESG scores, with the latter contributing considerably higher spillovers to the overall carbon market. These findings offer nuanced insights into the dynamic, structural, and firm-level characteristics of risk spillovers, providing valuable guidance for policymakers and investors to enhance market stability and optimize investment strategies. Full article

The integration of Environmental, Social, and Governance (ESG) criteria in investment decision-making is increasingly critical for evaluating energy projects. This study develops a structured, quantifiable framework using the Fuzzy DEMATEL method to assess and rank ESG factors, addressing the limitations of traditional scoring-based models. The proposed methodology systematically identifies the most influential ESG criteria and accounts for their interdependencies, providing a more comprehensive decision-making tool. The analysis, based on expert evaluations, highlights the dominant role of renewable energy integration, resource efficiency, and risk management in determining project sustainability. The results demonstrate that the framework ensures a more transparent and adaptable assessment process, supporting both investors and policymakers in navigating complex energy investment landscapes. The study also establishes a scalable approach that can incorporate financial performance indicators, enhancing the practical applicability of ESG-based investment evaluation. Full article

Environmental, social and governance (ESG) ratings (scores) provide quantitative measures for socially responsible investment. We consider ESG scores to be a third independent variable—on par with financial risk and return—and incorporate such numeric scores into dynamic asset pricing. Based on this incorporation, we develop the entire investment process for the ESG market: portfolio optimization and efficient frontier, capital market line (the market portfolio), risk-assessment measures and hedging instruments (options). There is currently no riskless asset available in such an ESG market; to address this, we develop the so-called shadow riskless rate, applicable to markets having only risky assets. We believe this to be the first paper that fully develops, under a single dynamic pricing framework, the entire investment process for an ESG market. As there are significant differences in methodologies developed by providers of ESG scores, we do not take the position that data from any single agency are to be favored. Consequently, we utilize ESG scores from Refinitiv in the manuscript’s empirical studies and redo all computations using S&P Global RobeoSAM ESG scores. Full article

The global economy was profoundly impacted by the emergence of the COVID-19 pandemic, with the hotel industry being among the sectors most severely affected. This study explores the relationship between environmental, social, and governance (ESG) performance and financial performance during the pandemic, focusing on 35 of the world’s largest hotel companies. A structured methodology was employed to assess short-term financial resilience using the shock depth (SD) and recovery rate (RR) indicators and long-term performance through the value-added weekly index (VAWI) and K-ratio. The findings of this study indicated that faster recovery was associated with greater capitalization. Furthermore, analysis of ESG scores indicated a median increase from 2019 to 2022, particularly in the figures of the environmental component. Despite these increases, pre-pandemic ESG scores demonstrated limited influence on short-term financial performance, though a correlation was observed between governance scores (as ESG score subscores) and long-term K-ratios. This finding suggests potential trade-offs between improving financial performance and maintaining governance standards in the sense of ESG scores. This study points to the intricate interplay between ESG and financial metrics during systemic crises, providing valuable insights for risk management and strategic planning in the hospitality business. The implications of these findings extend to the enhancement of resilience and the alignment of ESG strategies with financial sustainability. Full article

This study examines whether firm managers strategically use tax avoidance to address climate risks, with a specific focus on strategies employed to reduce corporate income tax liabilities, and this study incorporates the moderating role of ESG performance and is ground in stakeholder theory to highlight the balance between sustainability and corporate profit expectations. Using the secondary data from Chinese A-listed companies during 2017–2023, the findings reveal that firms increasingly adopt tax avoidance practices in response to rising climate risks. More specifically, strong ESG performance positively moderates this relationship, underscoring its role in shaping socially and ethically responsible strategies to tackle sustainability challenges. By employing panel data analysis and addressing endogeneity through instrumental variable tests, Propensity Score Matching, and the Heckman test, this study provides robust results. These findings contribute to the literature on tax avoidance and provide practical insights for actionable ESG initiatives. For firms, these include improving transparency in tax reporting and integrating sustainability metrics into corporate ESG framework for firms. For tax authority, they involve upgrading the tax-related big data supervision system and fostering alignment between corporate practices and government policies. Full article

This research examines the link between environmental, social, and governance (ESG) risk ratings and board characteristics on corporate performance. Using 2023 data from 117 companies on the Saudi Stock Exchange, the study employs Ordinary Least Squares (OLS) regression and Python for data analysis. Our findings reveal a negative effect of ESG risk scores on financial performance measures, indicating that higher ESG risks hinder firm performance measured by ROE and ROIC. Furthermore, both the size and independence of the board decrease corporate performance in Saudi firms. Family-controlled ownership structures often limit the effectiveness of independent directors in enhancing performance. In Saudi firms, women’s board participation shows an insignificant impact on corporate performance, suggesting that the Tokenism Theory may apply. It is recommended that firms empower women in leadership roles and develop robust ESG risk management frameworks to mitigate risks and enhance financial performance. Full article

This study focuses on identifying key factors that companies should prioritize to prevent chemical accidents from an ESG (Environmental, Social, and Governance) perspective. ESG provides insight into corporate sustainability by comprehensively considering both external impacts and internal risks. To achieve this, this study applied a scoring approach based on double materiality, assessing both internal and external impacts. The assessment process involved data collection, categorization of accident causes, score calculation, and prioritization of safety management items. Data from chemical accident statistics revealed that mechanical integrity, human factors, and preventive maintenance were the primary causes across all three countries. Internal impacts were evaluated by accident severity and frequency, while external impacts considered casualties and management priorities. Internal impact results showed mechanical integrity as critical in the U.S., preventive maintenance in the U.K., and human factors in Republic of Korea. For external impacts, human factors were most critical in Republic of Korea. To prioritize safety management elements for chemical accident prevention from an ESG perspective, this study categorized them into three tiers. Tier 1 represents the most critical elements requiring urgent attention, while Tier 3 includes the least critical elements. This tier classification is intended not as an absolute ranking but as a general reference for identifying overall trends in safety management priorities. Tier 1 included the U.K.’s preventive maintenance and human factors across all countries, with Republic of Korea’s human factors being the most vulnerable. Tier 2 revealed operating procedures and human factors as critical, with U.S. emergency preparedness and U.K. design highlighted. Tier 3, with impact scores below 1, was safest. These findings effectively identified safety management priorities to enhance accident prevention. Full article

Environmental, Social, and Governance (ESG) finance is a cornerstone of modern finance and investment, as it changes the classical return-risk view of investment by incorporating an additional dimension to investment performance: the ESG score of the investment. We define the ESG price process and include it in an extension of Bachelier’s market model in both discrete and continuous time, enabling option pricing valuation. Full article