Journal of Risk and Financial Management

Editorial

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2 pages, 181 KiB

Open AccessEditorial

Editorial on the Volume “ESG Investing and ESG Finance”

by Svetlozar (Zari) Rachev and W. Brent Lindquist

J. Risk Financial Manag. 2023, 16(10), 422; https://doi.org/10.3390/jrfm16100422 - 23 Sep 2023

Viewed by 1206

Abstract

In the ever-evolving world of finance, ESG (Environmental, Social, and Governance) investing and finance have emerged as pivotal areas of study [...] Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

Research

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18 pages, 1695 KiB

Open AccessArticle

The Effect of Sustainability Information Disclosure on the Cost of Equity Capital: An Empirical Analysis Based on Gartner Top 50 Supply Chain Rankings

by Lingyu Li, Xianrong Zheng and Shuxi Wang

J. Risk Financial Manag. 2023, 16(8), 358; https://doi.org/10.3390/jrfm16080358 - 31 Jul 2023

Cited by 2 | Viewed by 1260

Abstract

While disclosing financial information has been widely proved to reduce the financing cost of a company, the impact of non-financial information, such as sustainability information, disclosing on the financing cost of the company is still in debate. The goal of this paper is [...] Read more.

While disclosing financial information has been widely proved to reduce the financing cost of a company, the impact of non-financial information, such as sustainability information, disclosing on the financing cost of the company is still in debate. The goal of this paper is to explore the impact of disclosing sustainability-related information on the cost of equity for firms. The paper first introduces the concept of sustainability information disclosure, and then exhibits its benefit through exploring its impact on reducing a firm’s financing cost. It uses the Gartner supply chain top 50 rankings to construct the experiment environment to test for the effect of sustainability information disclosure on the cost of equity capital. The study uses the Gartner top 50 supply chain rankings from 2013 to 2017 to construct the experiment environment, and test for the sustainability information disclosure’s impact on reducing the cost of equity capital. The regressions, which are based on the 350 firm-year sample of the United States and the 604 global firm-year sample, indicate that sustainability information disclosure significantly reduced the cost of equity capital. This paper uses a fixed effect regression method to analyze the impact of sustainability information disclosure. According to the regression result, the sustainability information disclosure variable has a significant negative coefficient. The result is robust under many settings. Thus, the paper finds that sustainability information disclosure significantly diminishes the cost of equity capital, controlling for ESG information disclosure. It also discusses the implications of the findings and future research directions for sustainability information disclosure. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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17 pages, 342 KiB

Open AccessArticle

Environmental, Social, and Governance Considerations in WTI Financialization through Energy Funds

by Alper Gormus, Saban Nazlioglu and Steven L. Beach

J. Risk Financial Manag. 2023, 16(4), 231; https://doi.org/10.3390/jrfm16040231 - 06 Apr 2023

Cited by 2 | Viewed by 1231

Abstract

This study investigates interactions between energy funds and the oil market and examines the influence of environmental, social, and governance (ESG) criteria in dynamic responses by fund managers and investors. We test for price and volatility transmission (also referred to as “spillover”) between [...] Read more.

This study investigates interactions between energy funds and the oil market and examines the influence of environmental, social, and governance (ESG) criteria in dynamic responses by fund managers and investors. We test for price and volatility transmission (also referred to as “spillover”) between energy funds and the oil market using recently developed econometric techniques. After identifying specific information flows, we investigate whether certain fund characteristics, including several ESG dimensions, are associated with the existence of information transmissions. Then, in logit regressions, we seek to identify if energy fund managers and their investors make decisions using information regarding ESG metrics, including fossil fuel involvement. The results confirm bidirectional price and volatility transmission between energy funds and the oil market, consistent with evidence of the financialization of energy markets that has been identified in recent studies. Several ESG dimensions are shown to influence investor sentiment and affect price and volatility interactions. Dynamic investor decisions in funds in reaction to oil prices do not appear to be strongly influenced by the fossil fuel involvement of the funds. Fund flows do appear to influence the oil market, with fund fossil fuel involvement being an important factor. This paper evaluates the impact of granular ESG characteristics on energy mutual fund flows, price, and volatility interactions with the oil market. While our results support the findings from previous studies, they also provide several new insights into the impacts of ESG criteria and investor behavior, particularly the dynamic response by fund managers and energy market investors related to the fossil fuel involvement of the funds. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

22 pages, 1202 KiB

Open AccessArticle

Dissecting the Explanatory Power of ESG Features on Equity Returns by Sector, Capitalization, and Year with Interpretable Machine Learning

by Jérémi Assael, Laurent Carlier and Damien Challet

J. Risk Financial Manag. 2023, 16(3), 159; https://doi.org/10.3390/jrfm16030159 - 01 Mar 2023

Cited by 3 | Viewed by 1865

Abstract

We systematically investigate the links between price returns and Environment, Social and Governance (ESG) scores in the European equity market. Using interpretable machine learning, we examine whether ESG scores can explain the part of price returns not accounted for by classic equity factors, [...] Read more.

We systematically investigate the links between price returns and Environment, Social and Governance (ESG) scores in the European equity market. Using interpretable machine learning, we examine whether ESG scores can explain the part of price returns not accounted for by classic equity factors, especially the market one. We propose a cross-validation scheme with random company-wise validation to mitigate the relative initial lack of quantity and quality of ESG data, which allows us to use most of the latest and best data to both train and validate our models. Gradient boosting models successfully explain the part of annual price returns not accounted for by the market factor. We check with benchmark features that ESG data explain significantly better price returns than basic fundamental features alone. The most relevant ESG score encodes controversies. Finally, we find the opposite effects of better ESG scores on the price returns of small and large capitalization companies: better ESG scores are generally associated with larger price returns for the latter and reversely for the former. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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20 pages, 1088 KiB

Open AccessArticle

ESG Investing in “White Gold”: The Case of Lebanese Salinas

by Nada Mallah Boustani and Sana Abidib

J. Risk Financial Manag. 2023, 16(3), 147; https://doi.org/10.3390/jrfm16030147 - 22 Feb 2023

Cited by 1 | Viewed by 1549

Abstract

Lebanese sea salt is historically known as “white gold”. Traditional coastal sea salt production now survives mainly in the coastal city of Anfeh, and is facing various constraints due to regulations, as well as environmental threats which affect the quality of the sea [...] Read more.

Lebanese sea salt is historically known as “white gold”. Traditional coastal sea salt production now survives mainly in the coastal city of Anfeh, and is facing various constraints due to regulations, as well as environmental threats which affect the quality of the sea salt. This research points out the case of Lebanese Salinas that invested in ESG to improve the salt quality through social implications and diverse environmental techniques. Based on ESG investments and innovation theory, the main objectives of this research action project were to: create a plastic-free area and implement plastic-free sea salt production at 10 Salinas, using a local innovative tool to filter sea water that consists of a windmill, pump, metallic tube, and filter, which is placed on the main basin of a Salina to prevent the leakage of microplastics into the water used in sea salt extraction, to obtain a plastic-free sea salt. This would create a sustainable, ecofriendly process via the sorting of plastics at the source, clean-up activities, awareness activities, and incentive activities, resulting in the production of better sea salt and the promotion of local products and coastal tourism. The goal of the study was to implement methods that were recommended in the “S.O.S. (Save our Salt)” initiative, which was put into place by the Green Community NGO to protect Lebanese sea salt production and guarantee a reduction in the amount of these microparticles in sea salt. Data gathered from the project, as well as from in-person interviews and follow-ups with the project team, were used to conduct the empirical analysis. The amount of plastic that was present was reduced, resulting in one of the best sea salts in the area. Findings aligned with ESG investment for an increasing and sustainable firm performance and have several practical implications for many stakeholders, both internally and externally, including managers, investors, lenders, policymakers, government, and the public. Our results highlight the significance of formulating regulations for Lebanese Salinas to collectively handle production risks and enhance technical efficacy, and for regulators to lessen marine pollution. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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11 pages, 1051 KiB

Open AccessArticle

Impact of Environmental, Social, and Governance Activities on the Financial Performance of Indian Health Care Sector Firms: Using Competition as a Moderator

by Bhakti Agarwal, Rahul Singh Gautam, Pooja Jain, Shailesh Rastogi, Venkata Mrudula Bhimavarapu and Saumya Singh

J. Risk Financial Manag. 2023, 16(2), 109; https://doi.org/10.3390/jrfm16020109 - 10 Feb 2023

Cited by 9 | Viewed by 4047

Abstract

Environmental, social, and governance (ESG) activities have become essential and viable activities of corporations because of the increase in concern for environmental, social, and governance issues. The motive of this research is to measure the effect of ESG on the financial performance (FP) [...] Read more.

Environmental, social, and governance (ESG) activities have become essential and viable activities of corporations because of the increase in concern for environmental, social, and governance issues. The motive of this research is to measure the effect of ESG on the financial performance (FP) of healthcare corporations using the market-to-book value (MTB) ratio as a proxy of FP. A sample of 33 pharma companies in India from 2011 to 2020 has been considered. The study relies on the panel data method to assess the association between ESG and FP. The potential moderating role of competition has also been studied to simplify their relationship in this framework. The finding of this study is that there is a significant negative association between ESG and FP, and it is also found that when competition is used as a moderator, it results in a significantly positive impact on the ESG and FP of healthcare companies. This study increases the understanding of the association between ESG and FP and helps corporations to formulate corporate strategies and stakeholders to make investment decisions. The originality of this study is that it addresses the impact of competition on ESG and FP of the healthcare industry and will become foundational literature for future studies. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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17 pages, 1225 KiB

Open AccessArticle

The Influence of Transparency and Disclosure on the Valuation of Banks in India: The Moderating Effect of Environmental, Social, and Governance Variables, Shareholder Activism, and Market Power

by Venkata Mrudula Bhimavarapu, Shailesh Rastogi and Rebecca Abraham

J. Risk Financial Manag. 2022, 15(12), 612; https://doi.org/10.3390/jrfm15120612 - 16 Dec 2022

Cited by 8 | Viewed by 2196

Abstract

Research on the impact of transparency and disclosures (TD) on the firm’s valuation presents an ambiguous result. The effect of disclosure on value is a concern because disclosure is not an economic activity. It grows further due to the embellishment of positive disclosures [...] Read more.

Research on the impact of transparency and disclosures (TD) on the firm’s valuation presents an ambiguous result. The effect of disclosure on value is a concern because disclosure is not an economic activity. It grows further due to the embellishment of positive disclosures and the suppression of hostile facts. This situation has motivated the authors to conduct the current research. The study aims to empirically find the influence of TD on the valuation of banks in India while the Environmental, Social, and Governance Index (esgi), Shareholder activism index (shai), and Lerner Index (li) act as moderators. A panel data regression (PDR) is adopted to analyse the data in the study. Panel data for 31 public/private banks for ten years (2010–2019) are collated. The authors used econometric models to understand the linear, quadratic, and interaction association of Transparency and Disclosure (TD) with the valuation of the banks in India. It is empirically found that TD alone does not impact the valuation of banks but is positively associated with a bank’s value under the influence of the moderators, Environmental, Social, and Governance variables (esgi), and shareholder activism (shai). Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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11 pages, 982 KiB

Open AccessArticle

Hedonic Models of Real Estate Prices: GAM Models; Environmental and Sex-Offender-Proximity Factors

by Jason Robert Bailey, Davide Lauria, W. Brent Lindquist, Stefan Mittnik and Svetlozar T. Rachev

J. Risk Financial Manag. 2022, 15(12), 601; https://doi.org/10.3390/jrfm15120601 - 13 Dec 2022

Cited by 2 | Viewed by 1515

Abstract

We investigate the use of a P-spline generalized additive hedonic model (GAM) for real estate prices in large U.S. cities, contrasting their predictive efficiency against commonly used linear and polynomial-based generalized linear models (GLM). Using intrinsic and extrinsic factors available from Redfin, we [...] Read more.

We investigate the use of a P-spline generalized additive hedonic model (GAM) for real estate prices in large U.S. cities, contrasting their predictive efficiency against commonly used linear and polynomial-based generalized linear models (GLM). Using intrinsic and extrinsic factors available from Redfin, we show that the GAM model is capable of describing 84% to 92% of the variance in the expected ln(sales price), based upon 2021 data. In contrast, a strictly linear GLM accounted for 65% to 78% of the variance, while polynomial-based GLMs accounted for 82% to 88%. As climate change is becoming increasingly important, we utilized the GAM model to examine the significance of environmental factors in two urban centers on the northwest coast. While the results indicate city-dependent differences in the significance of environmental factors, we find that inclusion of the environmental factors increases the adjusted R² of the GAM model by less than 1%. Thirdly, our results indicate that the importance of sex offender residence proximity as a pricing factor is strongly influenced by state sex offender residence regulations. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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Review

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23 pages, 1719 KiB

Open AccessReview

Relationships between ESG Disclosure and Economic Growth: A Critical Review

by Bertrand Kian Hassani and Yacoub Bahini

J. Risk Financial Manag. 2022, 15(11), 538; https://doi.org/10.3390/jrfm15110538 - 18 Nov 2022

Cited by 11 | Viewed by 8875

Abstract

The literature on the relationship between ESG disclosure and economic growth is relatively non-existent. Thus, this paper highlights the importance of taking this relationship into account in current sustainable policies. The main objective of extra-financial Disclosure is to mitigate Information Asymmetry. During this [...] Read more.

The literature on the relationship between ESG disclosure and economic growth is relatively non-existent. Thus, this paper highlights the importance of taking this relationship into account in current sustainable policies. The main objective of extra-financial Disclosure is to mitigate Information Asymmetry. During this discussion, we show that ESG disclosure may not reduce information asymmetry as intended. We also show that complete extra-financial disclosure targeted by current policies is not optimal. There is an optimal disclosure threshold depending on the level of sustainable development of the country, the size of the companies and their development potential. Moreover, current ESG disclosure policies direct economies towards less polluting sectors, which is not necessarily optimal from an economic standpoint and could negatively affect economic activity and, therefore, the population’s well-being. We also provide some policy implications and suggestions for future research on the ESG disclosure literature. Full article

(This article belongs to the Special Issue ESG-Investing and ESG-Finance)

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