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A special issue of Sustainability (ISSN 2071-1050). This special issue belongs to the section "Sustainable Management".

Deadline for manuscript submissions: closed (20 June 2023) | Viewed by 25021

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Special Issue Editors

Dr. Michael C. S. Wong

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Guest Editor

Department of Economics and Finance, City University of Hong Kong, Hong Kong, China
Interests: capital markets; risk management; financial institution management; sustainable finance
Special Issues, Collections and Topics in MDPI journals

Prof. Dr. Kaiguo Zhou

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Guest Editor

Lingnan (University) College, Sun Yat-Sen University, Guangzhou 510275, China
Interests: Financial markets; corporate finance; financial risk management

Special Issue Information

Dear Colleagues,

Sustainable finance is becoming a hot topic due to several different reasons. First, many fund houses and wealth management advisors have actively advocated for the ideas of ESG investing for social good. Second, regulators from various economies have jointly strengthened the green and sustainability requirements on financial services and financial markets. Finally, some governments have enacted new laws to support and favor green and sustainable bond issuance.

To address the above new regulatory and business trends, financial institutions either have ESG business units, climate risk units, both set up to evaluate their business strategies and asset liability composition. The bond market has witnessed a sharp increase in green bond issuance in different regions in recent years. Some stock exchanges have issued strict guidelines on ESG compliance and reporting. Insurance companies are actively looking for new solutions on their liability risk management because of the increasing threats of climate change. Today, sustainability is an issue that is a related to business strategy, an opportunity for business growth, and/or a duty for the compliance and risk management of both financial institutions and corporations.

This Special Issue invites research papers that are related to sustainable finance and risk management. Either qualitative or quantitative analysis are welcome. Papers in the following areas are welcome in particular:

Climate change on insurance risk management;
Climate risk and asset liability management;
Green and sustainable banking;
Carbon market risk management;
Social impact investing;
Green bond and green Sukuk issuance;
Green certification and credit rating;
ESG investment portfolio management;
ESG asset securitization;
Financing circular economy projects;
ESG reporting, corporate governance, and equity valuation;
Project financing and ESG projects;
ESG investing for wealth management;
Sustainable finance in emerging economies.

We look forward to receiving your contributions.

Dr. Michael C S Wong
Prof. Dr. Kaiguo Zhou
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Sustainability is an international peer-reviewed open access semimonthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 2400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

sustainable finance
risk management
green bond
ESG financing
impact investing

Published Papers (11 papers)

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Research

15 pages, 296 KiB

Open AccessArticle

Effects from ESG Scores on P&C Insurance Companies

by Silvia Bressan

Sustainability 2023, 15(16), 12644; https://doi.org/10.3390/su151612644 - 21 Aug 2023

Cited by 2 | Viewed by 2054

Abstract

Insurers act as institutional investors and underwriters of risk. Therefore, improving their environmental, social, and governance (ESG) performance is important for the transmission of ESG values to all economic sectors. We analyze ESG scores of worldwide Property and Casualty (P&C) insurers during 2013–2022 and show that more sustainable insurers have high operating leverage despite appearing to be financially stable from their combined ratios and z-scores. Additional results for the US subsample illustrate that stocks issued by sustainable insurers deliver positive excess returns. Overall, these findings suggest that there is a significant association between sustainable practices and the ability of insurers to execute business and create value. This is important for insurance managers, investors, and policy makers, as insurers play a prominent role in promoting economic growth and stability. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

0 pages, 496 KiB

Open AccessArticle

A Framework for Integrating Extreme Weather Risk, Probability of Default, and Loss Given Default for Residential Mortgage Loans

by Michael C. S. Wong and Ho Ming Ho

Sustainability 2023, 15(15), 11808; https://doi.org/10.3390/su151511808 - 1 Aug 2023

Cited by 1 | Viewed by 1816 | Correction

Abstract

This paper considers a hypothetical case in which a bank wants to build a routine climate stress test exercise on residential mortgage loans. The bank has regularly updated the probability of default (PD) and loss given default (LGD) on each residential mortgage loan under the internal-rating-based (IRB) approach of Basel II/III. Additionally, the bank estimates the stressed PD and stressed LGD associated with a predetermined extreme weather event. Using simulation techniques, this paper shows that the loss of the bank’s residential mortgage portfolio can reach a median of around 36% of the portfolio value. This remarkable loss comes from the effects of default correlation and property damage. Banks should pay more attention to such impacts of extreme weather events. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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35 pages, 5426 KiB

Open AccessArticle

Counterparty Risk Contagion Model of Carbon Quota Based on Asset Price Reduction

by Tingqiang Chen, Yuejuan Hou, Lei Wang and Zeyu Li

Sustainability 2023, 15(14), 11377; https://doi.org/10.3390/su151411377 - 21 Jul 2023

Cited by 1 | Viewed by 737

Abstract

Driven by the “double carbon” goal, the sale of financial assets at reduced prices by firms due to carbon emission constraints is bound to aggravate the uncertainty and volatility of carbon trading among firms, and potentially create counterparty risk contagion. In view of this, this paper considers the sensitivity of the transaction of corporate financial assets, the transaction price of carbon quotas, and corporate carbon performance; constructs a network model for the risk contagion of carbon quota counterparties; theoretically discusses the risk formation and infection mechanism of carbon quota counterparties; and calculates and simulates the evolutionary characteristics of the risk contagion of carbon quota counterparties. The main research conclusions are as follows. (1) In the interfirm debt network, the sensitivity to the price of selling the financial asset, the probability of credit risk contagion of carbon quotas among firms, the cumulative proportion of assets sold, and the proportion of rational investors in the financial market exert a decreasing phenomenon on the risk of carbon quota counterparties. In addition, the corporate carbon performance shows a marginal increasing phenomenon. (2) When multiple factors intersect, the proportion of rational investors in the financial market has the greatest influence on the formation of the carbon quota counterparty risk, whereas the effect of corporate carbon performance has the least. Corporate carbon risk awareness has the greatest effect on the risk contagion of carbon quota counterparties, whereas the trading price of the carbon quota has the least influence. In addition, the total score of the interfirm assessment has a great impact on the trend and range of the risk contagion of carbon quota counterparties. (3) Corporate carbon risk awareness and the carbon quota trading price have a marginally decreasing effect on the risk contagion of carbon quota counterparties, and corporate carbon performance and the total score of interfirm assessment have a marginally increasing effect. This study has important theoretical and practical significance for preventing interfirm counterparty risk contagion under the double carbon target. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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19 pages, 635 KiB

Open AccessArticle

Financing Ecuadorian Social Enterprises: What Is the Role of Impact Investment?

by Evelyn Bacuilima, Joseline Morocho, Juan Aguirre, Katherine Coronel-Pangol and Pedro Mora

Sustainability 2023, 15(14), 11210; https://doi.org/10.3390/su151411210 - 18 Jul 2023

Cited by 1 | Viewed by 1128

Abstract

Social entrepreneurship is a topic of great development at the research level, which aims to discover, exploit and define the possibilities of increasing social wealth through activities and processes carried out with the creation and management of an innovative enterprise. From this, it has been identified that one of the main problems of social entrepreneurs in underdeveloped countries is the lack of financing, where new forms of financing have not been consolidated, as is the case with impact investment. Therefore, the objective of this research is to determine the role of impact investment in each of the Ecuadorian social enterprises under study. To this end, a qualitative research methodology of an interpretive nature was adopted through in-depth interviews with social entrepreneurs for the construction of results by means of summary tables and descriptive and graphic taxonomy. The results show that for most of the social enterprises studied, the role of impact investment is null, without this implying a lack of knowledge on the part of the social enterprises. Finally, it is necessary that policymakers take into account the need to promote sustainable development by improving social inclusion to support projects and enterprises that generate employment and opportunities for marginalized and vulnerable groups, promoting policies and measures that encourage this type of investment to generate a positive impact on the country. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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19 pages, 1797 KiB

Open AccessArticle

The Asymmetric Effects of Extreme Climate Risk Perception on Coal Futures Return Dynamics: Evidence from Nonparametric Causality-In-Quantiles Tests

by Wang Gao, Jiajia Wei and Shixiong Yang

Sustainability 2023, 15(10), 8156; https://doi.org/10.3390/su15108156 - 17 May 2023

Cited by 2 | Viewed by 1208

Abstract

This paper uses nonparametric causality-in-quantiles tests to examine the asymmetric effects of climate risk perception (CRP) on the thermal and coking coal futures high-frequency returns and volatilities. The results show that CRP significantly impacts the dynamic high-frequency returns of the coal futures market, with volatility indicators exhibiting asymmetry at different percentiles and being more pronounced in a downward market. The influence of CRP on dynamic coal futures mainly transmits through continuous components, while its impact on coking coal futures primarily transmits through jump parts. Additionally, the positive and negative volatilities of coal futures are asymmetrically affected by CRP. By incorporating the climate risk perception factor, investors can better predict price fluctuations in the coal market. This study provides an important supplement to the theory of pricing climate risks, and it is beneficial for formulating financial policies related to climate risk management and promoting the sustainable development of the coal industry. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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28 pages, 3157 KiB

Open AccessArticle

Performance of Equity Investments in Sustainable Environmental Markets

by Ikhlaas Gurrib, Firuz Kamalov, Olga Starkova, Adham Makki, Anita Mirchandani and Namrata Gupta

Sustainability 2023, 15(9), 7453; https://doi.org/10.3390/su15097453 - 1 May 2023

Cited by 2 | Viewed by 2221

Abstract

Despite a significant increase in global clean energy investments, as part of the decarbonization process, it remains insufficient to meet the demand for energy services in a sustainable manner. This study investigates the performance of sustainable energy equity investments, with focus on environmental markets, using monthly equity index data from 31 August 2009 to 30 December 2022. The main contributions of our study are (i) assessment of the performance of trading strategies based on the trend, momentum, and volatility of Environmental Opportunities (EO) and Environmental Technologies (ET) equity indices; and (ii) comparison of the performance of sustainable equity index investments to fossil fuel-based and major global equity indices. Market performance evaluation based on technical analysis tools such as the Relative Strength Index (RSI), Moving Averages, and Average True Range (ATR) is captured through the Sharpe and the Sharpe per trade. The analysis is divided according to regional, sector, and global EO indices, fossil fuel-based indices, and the key global stock market indices. Our findings reveal that a momentum-based strategy performed best for the MSCI Global Alternative Energy index with the highest excess return per unit of risk, followed by the fossil fuel-based indices. A trend-based strategy worked best for the MSCI Global Alternative Energy and EO 100 indices. The use of volatility-based information yielded the highest Sharpe ratio for EO Europe, followed by the Oil and Gas Exploration and Production industry, and MSCI Global Alternative Energy. We further find that a trader relying on a system which simultaneously provides momentum, trend, or volatility information would yield positive returns only for the MSCI Global Alternative Energy, the S&P Oil and Exploration and Production industry, NYSE Arca Oil, and FTSE 100 indices. Overall, despite the superior performance of the MSCI Global Alternative Energy index when using momentum and trend strategies, most region and sector EOs performed poorly compared to fossil fuel-based indices. The results suggest that the existing crude oil prices continue to allow fossil fuel-based equity investments to outperform most environmentally sustainable equity investments. These findings support that sustainable investments, on average, have yet to demonstrate consistent superior performance over non-renewable energy investments which demonstrates the need for continued, rigorous, and accommodating regulatory policy actions from government bodies in order to reorient significant capital flows towards sustainable equity investments. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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18 pages, 1607 KiB

Open AccessArticle

Evaluating and Prioritizing the Green Infrastructure Finance Risks for Sustainable Development in China

by Yan Dai and Yasir Ahmed Solangi

Sustainability 2023, 15(9), 7068; https://doi.org/10.3390/su15097068 - 23 Apr 2023

Cited by 9 | Viewed by 2025

Abstract

China has become a global leader in green infrastructure finance, investing heavily in renewable energy, sustainable transportation, and green buildings. However, there are multiple risks and challenges that impede the development of green infrastructure finance. Thus, this study analyzes and prioritizes the risks associated with green infrastructure finance in China and proposes policy plans to mitigate these risks. A Fuzzy analytical hierarchy process (AHP) is used to identify the main risks associated with green infrastructure finance. The main risks are further decomposed into sub-risks. After, the Fuzzy VlseKriterijumska Optimizacija I Kompromisno Resenje (VIKOR) method is used to prioritize the key policy plans to mitigate risks and sub-risks. The results of Fuzzy AHP show that policy and regulations are the most significant risk associated with green infrastructure finance in China, followed by financial risks, and technical risks. The results of Fuzzy VIKOR reveal that increasing the availability of financing options is the most crucial policy plan to mitigate the risks and sub-risks for green infrastructure finance. The developed standardized technical guidelines and procedures and a legal and regulatory framework are ranked second and third are the most effective and feasible policy plans. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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26 pages, 1357 KiB

Open AccessArticle

The Quality of Environmental KPI Disclosure in ESG Reporting for SMEs in Hong Kong

by Angus W. H. Yip and William Y. P. Yu

Sustainability 2023, 15(4), 3634; https://doi.org/10.3390/su15043634 - 16 Feb 2023

Cited by 5 | Viewed by 6112

Abstract

Since 2016, the Hong Kong Stock Exchange (“HKEx”) has required listed companies to issue Environment, Social and Governance (“ESG”) reports annually. The purpose of ESG reports is to inform stakeholders and the general public of listed companies’ performance in ESG aspects. For big corporations, issuing ESG reports and reporting their key performance indicators (“KPIs”) are not a problem because they have been doing so voluntarily for years. Rather, it is a challenge for small and medium-sized listed companies (“SMEs”) to report properly because they may be lacking in knowledge, skills and motivation, etc. In particular, the quality of quantitative measurements on ESG data disclosure remains variable. This research effort adopted a scoring methodology to assess the relevance and completeness of the environmental KPIs, which are semi-mandatory to disclose. A total of 138 SMEs were proportionately selected by a stratified sampling method based on the 11 categories of industries set by the Hang Seng Industry Classification System. The disclosure quality of these selected sample companies’ environmental KPIs was assessed by scoring. We found that the average disclosure quality score was a low 1.98. “Energy Use Efficiency” was the highest-performing KPI, while “The Environment and Natural Resources” was the lowest-performing KPI. Across the different industries, Industrial Goods achieved the highest disclosure quality score, while the Telecommunication industry had the worst score. This research also explored some of the common problems faced whilst reporting environmental KPIs. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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12 pages, 579 KiB

Open AccessArticle

Mission Efficiency Analysis of For-Profit Microfinance Institutions with Categorical Output Variables

by So Young Sohn and Yonghan Ju

Sustainability 2023, 15(3), 2732; https://doi.org/10.3390/su15032732 - 2 Feb 2023

Cited by 2 | Viewed by 1811

Abstract

The primary objective of microfinance institutions (MFIs) is to provide financial services to low-income clients and underprivileged women. As such, evaluating the efficiency of MFIs should take into account categorical output factors such as outreach and financial intermediation, rather than using the same metrics applied to traditional banks and credit unions. However, under adverse economic situations, one can expect the phenomenon of mission drift of for-profit MFIs such as microfinance banks and credit unions. When a mission drift occurs, MFIs intend to entertain wealthier clients to maximize profits, crowding out the poor ones. This paper empirically examines if such a phenomenon was observed during the global financial crisis period in Latin America and the Caribbean region using categorical Data Envelopment Analysis (DEA) data that have not been considered for the analysis of MFI efficiency. In addition, we conducted two-limit Tobit regression to find significant factors for MFI efficiency. We confirm that for-profit MFIs did not experience mission drift during the adverse economic situation while country, disclosure requirements, institutions’ age, and scale affected the efficiency of the for-profit MFIs. This indicates that for-profit MFIs in Latin America and the Caribbean region performed well in terms of their missions for micro-finance such as outreach, financial intermediation, as well as profit. The financially underprivileged faced a lack of household and business capital under the economic crisis. Based on the results, we conclude that support policies for younger and non-traditional MFIs to help the socially disadvantaged should be actively established for their sustainability in adverse economic situations. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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20 pages, 1558 KiB

Open AccessArticle

Accessing the Impact of FDI Goals on Risk Management Strategy and Management Performance in the Digital Era: A Case Study of SMEs in China

by Hengbin Yin, Muhammad Mohsin, Luyao Zhang, Chong Qian and Yan Cai

Sustainability 2022, 14(22), 14874; https://doi.org/10.3390/su142214874 - 10 Nov 2022

Cited by 1 | Viewed by 2361

Abstract

COVID-19 has impeded the internationalization of enterprises and sustainable digital economic growth. This situation has led to enterprises adopting divestment strategies to deal with multiple risks. However, the successful implementation of strategies depends on understanding the perceptible risks. Due to risk management failures or unexpected risks, strategic management has attributed withdrawal to production costs or marketing, but risk management has never addressed it. Moreover, small enterprises are more vulnerable to risks than large ones. For the first time, this study fills a gap in the literature by combining Dunning’s investment motives theory with the COSO risk management process theory to examine small enterprise risk perception in China. China has seen a growing number of foreign direct investment (FDI) withdraw. Different risks should have been faced and managed if these were determined to be efficiency-seekers or market-seekers. This research context led to a survey of 498 FDIs, including market-seeking or efficiency-seeking types, to identify perceived risk, managed risk, and value risk outcomes. The Statistical Package for the Social Sciences (SPSS) 18.0 program was used for frequency analysis of general characteristics and exploration of factor analysis, whereas, Analysis of Moment Structures (AMOS) 18.0 was used to perform a confirmatory factor analysis and develop a structural equation model. The obtained results indicate that market efficiency-oriented enterprises can modify their strategies by implementing digital transformation and localization strategies. In contrast, production efficiency-oriented enterprises will divest because of risks, without finding a better strategy. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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17 pages, 4676 KiB

Open AccessArticle

China’s Foreign Aid and Sustainable Growth of Recipient Countries: Mechanism and Evaluation

by Yifang Wan and Yunxian Chen

Sustainability 2022, 14(17), 10900; https://doi.org/10.3390/su141710900 - 31 Aug 2022

Cited by 1 | Viewed by 1858

Abstract

Since the beginning of the 21st century, emerging donors have developed a suite of aid innovations that play a significant role in the international financing arrangements of recipient countries. Using the OECD Creditor Reporting System (CRS) aid classification to categorize China’s foreign aid by sector, this paper examines the impact of China’s foreign aid on the economic growth of 121 recipient countries from 2000 to 2017. Our findings indicate that (1) the relationship between China’s foreign aid and recipient countries’ economic growth is “U-shaped”, with a threshold effect and primarily due to growth aid; (2) the relationship between recipient countries’ economic growth and their dependence on China’s foreign aid is “inverted U-shaped”, in both growth aid and welfare aid; (3) there is discernible regional heterogeneity in the economic impact of China’s foreign aid, and the impact may be underestimated if the endogeneity problem is not taken into account; and (4) China’s foreign aid, especially growth aid, promotes the economic growth of recipient countries through factor mobility, foreign direct investment (FDI), and international trade. Full article

(This article belongs to the Special Issue Sustainable Finance and Risk Management)

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