Sustainable development and financial system: IntegratingESGrisks through sustainable investment strategies in a climate change context

Abstract

Sustainable Investment funds are one of the most appropriate ways for the financial system to contribute to sustainable development. However, the effective contribution of Sustainable Investment funds can vary widely depending on their management strategy. This paper aims to analyze which strategies or combinations of them allow practitioners to better manage ESG risks in ESG portfolios within a complete framework consistent with global challenges that focus on sustainability and carbon risk scores. To analyze the differences between Sustainable Investment strategies, we adopt a parametric analysis of variance method. We find that, on average, funds that only apply negative filters achieve worse ESG risk scores and show worse carbon risk. In sum, this study contributes with more in-depth knowledge about the different outcomes in terms of sustainability risks of the different SI strategies.

Environmental, Social, Governance Risk and Corporate Sustainable Growth Nexus: Quantile Regression Approach

“…Sustainability risks refer to "the environmental, social or governance events or conditions, which, if they occur, have or may potentially have significant negative impacts on the assets, financial and earnings situation, or reputation of a supervised entity" [40]. Sustainability risks, or ESG risks, have gained attention among financial investors, stakeholders, and scholars [15,18,20,22,30,[41][42][43], and an increasing number of investors rely on ESG rating providers to measure these risks.…”

“…Like the ESG scores, Morningstar's rating uses a 0-100 scale, where lower scores are superior. ESG risk is divided by five risk levels: negligible (0-10), low (10)(11)(12)(13)(14)(15)(16)(17)(18)(19)(20), medium (20)(21)(22)(23)(24)(25)(26)(27)(28)(29)(30), high (30)(31)(32)(33)(34)(35)(36)(37)(38)(39)(40), and severe (40-100) [19].…”

“…Consequently, SGR provides an overall view of performance that grants investors and managers insight into the factors affecting growth rate, and how these relate to the income sources which maintain the company's survival long-term [14]. Furthermore, facing the global sustainable development agenda, climate change mitigation and a shift toward to low-carbon economies [15], increasingly many companies require effective risk management. Companies should not only focus on traditional financial risks but also consider the environment, social and governance (ESG) risks [16,17].…”

“…The ESG risk rating is a concept developed by Sustainalytics in mid-2019 to measure a company's exposure to ESG-related risks, replacing the ESG score previously used [22,30]. This shift in the perspective of the ESG score-from an indicator of sustainability virtue to an indicator of internal vulnerability-can highlight whether investors should treat the ESG label as an indicator of market performance [15].…”

Sustainable Risk Assessment of Resource Industry at Provincial Level in China

“…At present, environmental protection sectors and policy protection sectors have low sustainable risks, and resource-consuming sectors have higher sustainable risks. The sustainable risk of economically developed areas is lower than that of areas with low and medium levels of development [26,27]. The sustainable risk assessment of different regions or industries requires a comprehensive assessment from multiple dimensions such as economy, society, and ecological environment.…”