Tiêu chí đánh giá và Chấm Điểm
ĐỀ BÀI CỦA NHÓM MÌNH
CÔNG VIỆC PHÂN CÔNG:
Quest 1+ Intro: Khánh Huyền
Quest 2 + Example: Thu Phương
Quest 3 ý 1 + Example: Minh
Quest 3 ý 2 + Conclusion & Recommendation: Khánh Linh
1. Abstract
ESG (Environmental, Social, and Governance) investing model has become more and
more popular among industries, which has gradually established a new trend in the
future. At the same time, ESG also provides a wide range of business and investment
opportunities. This essay will elaborate on many aspects of ESG Models, such as
criteria, adoptions, and trend anticipations, as well as challenges it may cause, and
propose some effective recommendations and rational conclusions.
2. Introduction
In recent years, Environmental, Social, and Governance (ESG) initiatives have become
increasingly important in the financial industry. A growing number of businesses and investors
are incorporating ESG factors into their strategies for long-term success. These initiatives allow
companies to make responsible decisions that take social welfare, the environment, and ethical
management into account. This paper examines how ESG initiatives contribute to the stability
and expansion of the financial market and the potential challenges that arise among corporations
and investors if they adopt ESG standards.
1.1. The main ESG criteria
ESG is a framework that includes environmental, social, and governance factors, used by
companies for investment analysis and decision-making.
Environmental factors assess a company’s influence on natural systems. This includes various
aspects of climate change risks, such as greenhouse gas emissions and green energy initiatives.
Businesses also consider their actions and strategies for preserving biodiversity and promoting
environmental projects.
Social criterion addresses how a company maintains relationships with its employees, customers,
suppliers, and communities. Key components of this category are the company’s position on
human rights, labor practices, and consumer protection.
The main focus of Governance issues is the internal procedures and policies regarding corporate
governance. Transparency in accounting practices, avoidance of conflicts of interest, and
upholding shareholder rights demonstrate effective governance.
1.2. Importance of ESG for sustainable growth of the financial market
Due to the demand for sustainable investing in recent years, ESG has gained significant traction
as its components play a crucial role in assessing potential risks and opportunities for participants
in the financial market.
Firstly, investors have been showing a growing interest in aligning their portfolios with their
values by including sustainability factors in their investment choices. This is further supported by
research from the NYU Stern Center, which found a positive relationship between ESG and
financial performance in 58% of corporations. Secondly, ESG makes a positive impact on the
environment by encouraging businesses to support environmentally and socially beneficial
projects. For example, more companies are investing in green bonds to promote environmental
goals. Moreover, ESG initiatives also allow the company to attract and retain talent as it
prioritizes protecting labor rights and ensuring a healthy working place. Lastly, by focusing on
those aspects, companies can be more prepared when new regulations are introduced and
reassure investors that the business is responsible and stable.
3. Q2
There are some differences in the application of Environmental, Social, and Governance (ESG),
between developed countries and developing countries since the applicability of these measures
is affected by several parameters such as the presence of regulatory framework, the degree of
economic development, the level of capital markets, and the society’s values. Such contrasts
arise from the different economic, social, and political contexts that influence how the markets
are structured and companies operate.
Regulatory Framework and Government Policy: In developed markets, particularly in Europe
and North America, the regulations about ESG compliance might be more stringent and detailed.
Within the European Union: The Green Deal The EU Green Deal In 2019, the European Union
(EU) unveiled the European Green Deal, aiming to achieve carbon neutrality by 2050. This
overall policy framework has contributed to multiple laws that impact investors and enterprises
(European Commission, 2019). In order to combat carbon leakages the imported Carbon Border
Adjustment Mechanism (CBAM) was established in 2021 (Mehling et al., 2022). In order to
promote the uptake of ESG within developed nations, capping measures, such as tariffs, could be
deployed against non compliant organisations. For instance, in March 2022, the US SEC showed
interest in the SEC Climate Disclosure Rule and recommended creating rules obligating issuers
to disclose climate change threats and global warming emissions (Gelles and Yaffe-Bellany
2022).
However, the practice of ESG does seem to be put into practice in developing markets as there is
hardly any form of robust regulatory enforcement of such standards. Although emerging markets
are starting to embrace ESG, the regulatory frameworks are still a work in progress. For instance,
in countries such as India and Brazil, ESG reporting was not mandatory until recently, and it
seems that government initiatives are gradually trying to keep up with other global initiatives.
India In 2021, the Securities and Exchange Board of India (SEBI) mandated the top 1000 listed
companies by market capitalization to submit a Business Responsibility and Sustainability
Report (BRSR) (Kumar et al., 2022) and Brazil The Brazilian Central Bank introduced
mandatory climate-related financial disclosures for regulated financial institutions, effective from
July 2022 (Banco Central do Brasil, 2021).
Access to Capital and Investor Pressure: There is a defined capital market within which more
mature markets operate comfortably as far as the ESG environment is concerned. Some
institutional investors, whose seats are in Europe and North America, are now more concerned
about ESG compliance of the firms they intend to invest in. This is evidenced by the rise in green
bonds and other sustainable investment funds which have gained traction over the more
conventional means of investing. The European Union (EU) for Instance has practically taken
the lead in global ESG regulatory framework. In its Sustainable Finance Disclosure Regulation
(SFDR) financial institutions are required to report their ESG activities and orientations with a
view of promoting transparency and accountability. Further, big institutional investors like
BlackRock and Vanguard in the US have a huge role in pushing out ESG programs. Such
investors pressure corporations to control climate risks, enhance governance practices, and
address social issues which they believe are of critical importance to prospects of making returns
in the long run.
On the other hand, these nations also have developing economies that are not so advanced with
regards to the available capital, especially with ESG considerations. But this is on the course to
change. From 2017 to 2021, the growth in the issuance of green bonds in the emerging markets
was observed to be remarkable with an annual increase of 36%. These markets are coming to
understand that improved ESG performance results in lower capital costs and easier access to
new funding sources. Despite these advancements, poor economies continue to invest less in
ESG overall than developed ones.
Economic Development and Societal Priorities:ESG is viewed as a factor for competitive
advantage along the long-term perspective by the developed economies. With respects to these
markets, the clients, regulatory officials or the investors’ requirements are fulfilled by the
businesses through deploying ESG strategies. To illustrate, the consumers from developed
nations who have elevated ESG scores tend to have a more faithful following, especially those
who belong in the younger generations who have a more sustainable-focused approach. Nielsen,
2015 reported that millennials in developed countries, 73% are ready to pay a premium for
sustainable products. Such a behavior of consumers gives both reputational and market reasons
to organizations to comply with the ESG principles.
On the other hand, developing economies often fail to consider the long-term aspects because
they are focused more on creating jobs and growing economies in the short run. Visser (2008)
stated “In developing countries, the priorities are different and relate more to economic
contribution, job creation, and poverty alleviation” (p. 474). Such an emphasis on job creation
and poverty alleviation through economic growth will sometimes dominate the consideration of
ESG aspects and therefore the advancement of their standards grows at a lower pace.
As an illustration, the adoption of ESG has improved in India over time. The Standards for ESG
disclosure developed by the Securities and Exchange Board of India (SEBI) apply to 1000
largest publicly traded companies. In other parts of Southeast Asia, such as Indonesia and the
Philippines, environmental and social issues often take a back seat to industrialization and
economic expansion. Developing markets thus encounter unique challenges, balancing the need
for growth with the imperative for sustainability.
4. Q3-ý 1
Following various ESG Global Advisors, the year 2024 is assumed to be a highly considerable
year for ESG, as standards and regulations are disclosed to carry out much-needed clarity to
markets. This includes clarity around terminology as well as consistency and comparability of
ESG and climate-related information in capital markets. The shift towards climate appearance
will contribute to investors’ urge for corporate climate accountability to raise standards of
practice across the board. Companies that don’t move rapidly on climate will see votes against
their directors at annual meetings. Climate accountability will also split over to private markets
in 2024 as private operators begin calculating their GHG (GreenHouse Gas) emissions for
disclosure to their financial institutions. Privately- owned companies will also be influenced by
European reveal rules, which will be involved in the already-growing trend toward double
materiality assessments in 2024. The diversity of sustainable investing strategies is set to
broaden (Morgan Stanley, 2023). Investors should anticipate growing interest in themes beyond
climate action. These include nature and biodiversity, transition finance (which funds
companies’ transition to net zero), and inclusive finance (which offers financing to
underrepresented people and communities). Social issues should also keep gaining possibilities
on investor agendas, drawing attention to issues such as the privacy and ethical practices of
artificial intelligence; racial, gender, and LGBTQ+ diversity; access to affordable and reasonable
housing, healthcare, and education; and the discrimination social implications of physical climate
events and the infrequently social impacts of physical climate events. More and more countries
tend to approach the net zero strategy which necessitates land use. One area of focus will be
ensuring the productivity and efficiency of land used with the upcoming demand for renewable
energy and conservation. Hydropower and some genres of solar power can require up to twice as
much land needed for coal, and up to about 30 times as much as gas. The amount of land used
for electricity worldwide production could rise by 60%. To assure long-term climate-optimistic
outcomes, land use should include reforestation and afforestation, which involves planting trees
on land not previously forested; landscape restoration; deforestation-banned legislations; and
biodiversity preservation.
5. Q3-ý2
a. Corporation
Adopting ESG standards presents notable challenges for corporations, including a lack of
standardization, data quality issues, and balancing short-term profits with long-term
sustainability objectives (Bezerra et al., 2024). The more regional frameworks that exist, such as
the Global Reporting Initiative (GRI), Sustainable Finance Disclosure Regulation (SFDR), and
Climate Disclosure Standards Board (CDSB), the more complicated and expensive it will be to
reach compliance. According to Financial Executives International, 85% of organizations use
different structures to satisfy stakeholders, making performance comparison cumbersome
(Fabrizio & Grazia, 2022). For instance, HSBC has robust ESG programs in Europe due to
SFDR regulations but struggles with compliance in countries with lenient legislation like the US
and China (HSBC, 2023).
Moreover, data collection and management remain uphill tasks for many organizations since
information comes out from fragmented sources across outdated infrastructure. Furthermore,
various ESG risks, such as climate-related issues, resource depletion, and transparency
challenges are complex to manage and quantify financially (Deloitte, 2023). Consequently,
inaccurate or incomplete data can adversely lead to reporting, disclosure, and decision-making,
and eventually lawsuits and reputational harm.
Finally, corporations often struggle to balance immediate profitability with long-term ESG
objectives that require significant upfront investment, particularly in technological advancements
or R&D processes. For instance, the diesel emissions crisis Volkswagen faced in 2015 compelled
huge investments in electric vehicles, which hurt their bottom line in the near term but placed
them into future sustainable markets (Soren, 2021). The main challenge is justifying those long-
term investments to the stakeholders focused on quicker returns.
b. Investors
After all, it is about time that integrated ESG strategy went hand in glove with incomparable and
inconsistent ESG data . Indeed, different reports applied different metrics and methods for their
measurement; hence, the evaluation and decision-making were not so easy ( Eccles & Klimenko,
2019). Moreover, such variability can also produce greenwashing since almost 40% of the
environmental claims of firms have been considered misleading or not verifiable (Steffan, 2022).
Moreover, a transition portfolio aligned with the ESG framework poses challenges for investors,
especially regarding diversification and risk-return balance. In detail, several traditional high-
profit industries may have to be excluded, such as fossil fuels (Chevron or ExxonMobil
company), tobacco (Philip Morris), and mining, due to their incompatibility with sustainability
goals and detrimental effect on society; therefore, it eventually reduces diversification and
potentially increases short-term risks exposure for investors. For instance, solar or wind energy
requires huge capital and time to pay off, raising uncertainty for those accustomed to traditional
returns. Besides, McKinsey & Company (2022) attests that electric vehicles have created the
potential for growth in emerging markets but in the very same breath present potential risks due
to market volatility and regulations altered, which indeed saw some stock prices nosedive. Thus,
investors need to carefully balance their desire for ethical investments with the need to maintain
a diversified, risk-mitigated portfolio.
6. Recommendation
Firstly, implementing standardized ESG reporting frameworks, such as the Global Reporting
Initiative (GRI) or Sustainability Accounting Standards Board (SASB), to improve consistency
and comparability, alleviating some of the challenges faced by both corporations and investors in
reporting and evaluating ESG performance. Besides, the International Sustainability Standards
Board (ISSB) aims to establish a global reporting system by 2024, paving the way for more
transparent and comparable ESG performance standards (ESG Research, 2023). Subsequently,
engaging stakeholders is essential, as it not only helps companies refine their ESG strategies but
also improves the quality and transparency of their reporting. Unilever exemplifies this by
collaborating with stakeholders to better understand expectations and strengthen its ESG
credibility (Unilever, n.d.). Lastly, investing in technologies like AI and blockchain is crucial
for managing ESG data effectively. For example, Microsoft employs AI-driven analytics to
assess the impacts of climate change and regulations on its ESG performance (Microsoft
Sustainability, n.d.).
In contrast, for investors, this approach requires a long-term perspective that weighs short-term
economic constraints against the advantage of sustainable investment. It emphasizes holistic risk
management, where ESG factors are part of the investment decision-making process.
Additionally, investors are encouraged to actively engage with the companies in their portfolios,
assessing their ESG performance and promptly addressing any potential risks. Finally, enhancing
awareness and education on ESG principles empowers investors to make informed choices.
Notably, the CFA Institute is leading efforts to provide investment professionals with ESG-
related training, facilitating the integration of these factors into their analyses (ESG News, 2024).
7. Conclusion
ESG initiatives are essential for the sustainable development of financial markets, as they foster
long-term value and effectively manage risks by incorporating environmental, social, and
governance factors. This study emphasizes the importance of ESG standards and their adoption
across both developed and developing nations. Corporations and investors confront several
obstacles, including inconsistent principles, low data quality, and balancing short-term financial
pressure with long-term environmental goals. Undoubtedly, this paper is constrained by time
limitations. The authors anticipate that future research will not only seek improved solutions but
also investigate the broader implications of ESG initiatives on the sustainable growth of the
financial market.
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