Assessment of Potential Risks of Current ESG Investment

Research Article
Open access

Assessment of Potential Risks of Current ESG Investment

Ruiyang Chen 1*
  • 1 New York University Shanghai    
  • *corresponding author rc4490@nyu.edu
Published on 10 November 2023 | https://doi.org/10.54254/2754-1169/39/20231967
AEMPS Vol.39
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-83558-099-8
ISBN (Online): 978-1-83558-100-1

Abstract

This paper addresses the critical need for a systematic examination of risks in the field of Environmental, Social, and Governance (ESG) investment. By categorizing these risks into three main dimensions - consumer side, corporate side, and regulatory side - this study presents a refined analysis of the distinct risks faced by each stakeholder. The identified risks include costs, limitations of investment models, environmental risks, and risks associated with inconsistent standards. Importantly, this research bridges the gap in previous literature by providing a comprehensive and systematic investigation of ESG investment risks. To mitigate these risks, this paper integrates cutting-edge theories and models to propose practical recommendations for risk management and control. By doing so, it offers valuable insights for investors, corporations, and regulatory bodies seeking to strengthen their understanding of and ability to navigate ESG investment risks effectively. Furthermore, this study forecasts future trends, allowing for reasonable considerations of potential policy changes and the evolution of investment models. By providing such insights, the paper offers a perspective that is forward-looking and adaptable to emerging developments. In summary, this research contributes to the understanding of ESG investment risks by presenting a comprehensive analysis and proposing actionable measures to mitigate these risks. It fills the gap in the existing literature and offers practical significance for stakeholders involved in ESG investment. Additionally, the study presents a forward-looking perspective by offering reasonable projections for future trends.

Keywords:

ESG investment, risk assessment, rating criteria

Chen,R. (2023). Assessment of Potential Risks of Current ESG Investment. Advances in Economics, Management and Political Sciences,39,188-193.
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References

[1]. SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices. https://www.sec.gov/news/press-release/2022-92, last accessed 2023/5/20.

[2]. MAS and SGX Group Launch ESGenome Disclosure Portal to Streamline Sustainability Reporting and Enhance Investor Access to ESG Data. Monetary Authority of Singapore. https://www.mas.gov.sg/news/media-releases/2022/mas-and-sgx-group-launch-esgenome-disclosure-portal-to-streamline-sustainability-reporting-and-enhance-investor-access-to-esg-data, last accessed 2023/5/20.

[3]. ESG Investing: Practices, Progress, and Challenges. OECD Paris. www.oecd.org/finance/ESG-Investing-Practices-Progress-and-Challenges, last accessed 2023/5/20.

[4]. Sounding Good Or Doing Good? A Skeptical Look At ESG. Seeking Alpha. https://seekingalpha.com/article/4375648-sounding-good-or-doing-good-skeptical-look-at-esg, last accessed 2023/5/20.

[5]. Lee, M. D., & Suh, I.: Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach. Sustainable Technology and Entrepreneurship 1(1), 100004 (2022).

[6]. Drempetic, S., Klein, C., & Zwergel, B.: The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review. Journal of Business Ethics 167(2), 333–360 (2020).

[7]. Avramov, D., Cheng, S., Lioui, A., & Tarelli, A.: Sustainable Investing with ESG Rating Uncertainty. Journal of Financial Economics 145(2): 1-49 (2022).

[8]. Ferrua Rotaru C. S.: Challenges and Opportunities for Sustainable Finance. Journal of Contemporary Issues in Business and Government 25(1): 1-13 (2019).

[9]. Giese, G., Lee, L., Melas, D., Nagy, Z. Z., & Nishikawa, L.: Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance. The Journal of Portfolio Management 45(5), 69–83 (2019).

[10]. Gaganis, C., Pasiouras, F., Tasiou, M., & Zopounidis, C.: Sustainable Finance and ESG: Risk, Management, Regulations, and Implications for Financial Institutions, 1st ed. Cham: Palgrave Macmillan (2023).

[11]. D’Orazio, P.: Towards a post-pandemic policy framework to manage climate-related financial risks and resilience. Climate Policy 21(10), 1368–1382 (2021).

[12]. IFRS. International Sustainability Standards Board. https://www.ifrs.org/groups/international-sustainability-standards-board/, last accessed 2023/5/20.

[13]. Kocmanová, A., Dočekalová, M., Meluzín, T., & Škapa, S.: Sustainable Investing Model for Decision Makers (Based On Research of Manufacturing Industry in the Czech Republic). Sustainability 12(20), 8342 (2020).

Cite this article

Chen,R. (2023). Assessment of Potential Risks of Current ESG Investment. Advances in Economics, Management and Political Sciences,39,188-193.

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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 7th International Conference on Economic Management and Green Development

ISBN：978-1-83558-099-8(Print) / 978-1-83558-100-1(Online)
Editor：Canh Thien Dang
Conference website: https://www.icemgd.org/
Conference date: 6 August 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.39
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices. https://www.sec.gov/news/press-release/2022-92, last accessed 2023/5/20.

[2]. MAS and SGX Group Launch ESGenome Disclosure Portal to Streamline Sustainability Reporting and Enhance Investor Access to ESG Data. Monetary Authority of Singapore. https://www.mas.gov.sg/news/media-releases/2022/mas-and-sgx-group-launch-esgenome-disclosure-portal-to-streamline-sustainability-reporting-and-enhance-investor-access-to-esg-data, last accessed 2023/5/20.

[3]. ESG Investing: Practices, Progress, and Challenges. OECD Paris. www.oecd.org/finance/ESG-Investing-Practices-Progress-and-Challenges, last accessed 2023/5/20.

[4]. Sounding Good Or Doing Good? A Skeptical Look At ESG. Seeking Alpha. https://seekingalpha.com/article/4375648-sounding-good-or-doing-good-skeptical-look-at-esg, last accessed 2023/5/20.

[5]. Lee, M. D., & Suh, I.: Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach. Sustainable Technology and Entrepreneurship 1(1), 100004 (2022).

[6]. Drempetic, S., Klein, C., & Zwergel, B.: The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review. Journal of Business Ethics 167(2), 333–360 (2020).

[7]. Avramov, D., Cheng, S., Lioui, A., & Tarelli, A.: Sustainable Investing with ESG Rating Uncertainty. Journal of Financial Economics 145(2): 1-49 (2022).

[8]. Ferrua Rotaru C. S.: Challenges and Opportunities for Sustainable Finance. Journal of Contemporary Issues in Business and Government 25(1): 1-13 (2019).

[9]. Giese, G., Lee, L., Melas, D., Nagy, Z. Z., & Nishikawa, L.: Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance. The Journal of Portfolio Management 45(5), 69–83 (2019).

[10]. Gaganis, C., Pasiouras, F., Tasiou, M., & Zopounidis, C.: Sustainable Finance and ESG: Risk, Management, Regulations, and Implications for Financial Institutions, 1st ed. Cham: Palgrave Macmillan (2023).

[11]. D’Orazio, P.: Towards a post-pandemic policy framework to manage climate-related financial risks and resilience. Climate Policy 21(10), 1368–1382 (2021).

[12]. IFRS. International Sustainability Standards Board. https://www.ifrs.org/groups/international-sustainability-standards-board/, last accessed 2023/5/20.

[13]. Kocmanová, A., Dočekalová, M., Meluzín, T., & Škapa, S.: Sustainable Investing Model for Decision Makers (Based On Research of Manufacturing Industry in the Czech Republic). Sustainability 12(20), 8342 (2020).

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