Measuring the sustainability of investment funds: A critical review of methods and frameworks in sustainable finance

PurposeThis study aims to analyse Moody’s use of sustainable finance keywords in over 24,000 rating action reports from 2012 to 2024. Prior to Moody’s 2019 acquisition of Vigeo Eiris (VE) – a specialist sustainable research firm – sustainable finance keywords were more closely associated with downgrades and conveyed a negative tone. Post-acquisition, the proportion of sustainable finance terminology increased, while its influence on rating outcomes diminished and conveyed a positive tone. These findings reflect broader systemic shifts driven by acquisitions, market forces and regulatory pressures, suggesting a normalization of sustainable finance factors in Moody’s credit evaluations and marking their shift from exceptional to routine considerations.Design/methodology/approachThe study analyses over 24,000 Moody’s rating action reports (2012–2024) to evaluate changes in the use of sustainable finance keywords before and after Moody’s 2019 acquisition of VE. Sentiment analysis and statistical tests identify a significant increase in the use of sustainability terms post-acquisition, reflecting normalization and diminished association with credit downgrades. Pre-acquisition, such terms conveyed heightened credit risk. Post-acquisition, they became routine, positively framed and less correlated with negative outcomes. The methodology includes textual analysis, sentiment scoring using the Loughran–McDonald dictionary, regression models, and Chow tests to assess structural breaks in keyword trends.FindingsThe study finds that Moody’s use of sustainable finance keywords increased significantly after its 2019 acquisition of VE, marking a shift toward routine integration of sustainability considerations. Pre-acquisition, such terms were rare, linked with downgrades and carried a negative tone, indicating heightened risk perceptions. Post-acquisition, keyword frequency rose, sentiment became less negative, and their association with downgrades diminished. This reflects a normalization of environmental, social and governance (ESG) factors in credit assessments, driven by Moody’s enhanced expertise, market trends and regulatory pressures. The findings highlight the evolving role of ESG in credit evaluations, influencing perceptions of credit risk and capital allocation.Practical implicationsThe study highlights the transformative role of strategic acquisitions in integrating ESG considerations into financial assessments. For credit rating agencies, it underscores the importance of aligning methodologies with evolving market demands and regulatory expectations. Policymakers can leverage these findings to promote standardized ESG reporting and encourage sustainable finance integration. Investors benefit from more nuanced credit assessments that incorporate ESG factors, enabling informed capital allocation aligned with sustainability goals. For corporations, the normalization of ESG considerations incentivizes improved sustainability practices to achieve favourable ratings, influencing access to capital and financial strategies while fostering a more resilient global financial system.Originality/valueThis study provides novel insights into how ESG considerations evolve within credit rating methodologies following strategic acquisitions. By analysing over 24,000 Moody’s reports, it is the first to demonstrate a significant shift in the frequency, sentiment and impact of sustainable finance keywords post-acquisition. Unlike prior research, which focuses on ESG’s quantitative effects, this study explores narrative changes, revealing how sustainability factors transitioned from exceptional risks to routine considerations. It highlights the broader systemic forces – acquisitions, market demands, and regulation – that drive ESG integration, offering valuable contributions to academic discourse, financial market practices and sustainable investment strategies.

Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable projects. To guide the transformation towards a sustainable and inclusive economy, the United Nations in 2015 developed the 2030 Agenda for Sustainable Development. However, measuring the impact that sustainable investments have on their environmental targets remains challenging. There is a risk that investors may become reluctant to invest at the scale necessary to mitigate climate change, especially if policy action to address climate change is lagging. Only with accurate and adequately standardized reporting of climate risks in financial statements can investors discern projects’ actual exposures to climate- related financial risks. It is against this backdrop that the study fathomed to assess the state of sustainable finance in projects, to assess the role of financial institutions in sustainable finance and to assess policy issues in sustainable finance in projects. The study adopted desk review also known as Meta-analysis method to extract information concerning sustainable finance in infrastructure projects with subsets on the state of sustainable finance in projects, the role of financial institutions in sustainable finance and policy issues in sustainable finance in projects. The study observed that new financial products and services with ESG have been incorporated into general lending, insurance and investment strategies. A number of new regulatory and legislative regulations have been invented by government or other auditing financial bodies (the European Union and the Capital Market Commission) and have been compulsorily or voluntarily adopted in order to classify and evaluate the weight of the environmental, social and sustainable information in the capital market. Banks are adjusting their lending policies by giving incentives on loan pricing for sustainable projects by adopting less carbon-intensive technologies. On policy issues in sustainable finance, IMF conducts the analysis of risks and vulnerabilities and advising its members on macro-financial policies regarding sustainable finance which has stimulated the private sector capital investment on sustainable projects. Equally, UNEP through its resource efficiency programme offer countries the service of reviewing their policy and regulatory environment for the financing system and developing sustainable finance roadmaps, and assisting central banks, regulators on how to best improve the regulatory framework of domestic financial markets to shape the way and supporting multi-country policy initiatives at sub-regional, regional and global level. In conclusion, sustainable finance is well developed in the international capital markets of Europe, USA, Japan and Australia while in Africa the idea is still nascent and requires the guidance of international monetary and non-monetary institutions to stimulate the financial markets to adjust to sustainable finance initiatives. Further, there is a significant lack of official, regulatory or binding legal standards, for the taxonomy, the evaluation and the notification of environmental, social and corporate governance information in the capital market. The study recommends that: Financial stakeholders should design a holistic taxonomy for the long-term evaluation and notification of the sustainable financial risk models; Sufficient regulatory safeguards should be enacted in every financial product that will satisfy the demand for a clearer sustainable evaluation; Financial instruments and credit rating should be indexed against ESG factors; In parallel with the global initiatives inspired by the United Nations, lending institutions should undertake actions with regard to increasing the level of social responsibility; Lenders insist on information disclosure on how institutional investors and asset managers integrate ESG factors in their risk processes; The capital stock markets should trade Green financial instruments such as green bonds, green loans, green venture capital, green credit guarantee and green insurance on the counter; Entrench PPP Models for resource mobilization and risk sharing and enhance awareness creation and publicity on sustainable finance benefits and operations should be enhanced.

As companies, investors, and legislators realise how crucial it is to include Environmental, Social, and Governance (ESG) considerations in financial decision- making, the idea of sustainable finance has grown in popularity. In order to promote sustainable development, this review paper investigates how incorporating ESG factors can improve financial decision-making. The growth of ESG, its guiding principles, and its expanding impact on financial markets are all critically examined in this article. It outlines the main forces supporting ESG integration, including investor demand, business responsibility, and regulatory pressures, by examining recent research and industry practices. The study also emphasises how ESG considerations affect business transparency, long-term value development, and risk management. Issues with standardisation, data quality, and the dangers of greenwashing are among the difficulties that come with integrating ESG. This paper concludes by outlining recommendations for policymakers and financial institutions to enhance the integration of ESG factors, emphasising the need for improved regulatory frameworks, greater transparency, and consistent reporting standards. The study illustrates that although there is increasing agreement regarding the value of ESG in mitigating financial risks and contributing to sustainable economic growth, practical implementation remains inconsistent across industries and regions. The review also assesses various methodologies for evaluating ESG performance and how these are linked to financial returns, showing that well-implemented ESG strategies can result in competitive advantages and increased investor confidence. The results highlight the significance of sustainable finance as a driver for accomplishing more general environmental and social goals while preserving the long-term viability and financial success of enterprises. The report urges more work to remove current obstacles and promote a more uniform, internationally recognised method of incorporating ESG considerations into financial decision- making. Key Words: Sustainable Finance, ESG Integration, Financial Decision-Making, Risk Management, Sustainable Development, Investor Demand.

The rapid growth of the digital economy demands fundamental transformation in corporate governance (GCG), which no longer focuses solely on financial performance, but also on the integration of sustainability principles. Demands from investors and global stakeholders are encouraging companies in Indonesia to adopt an Environmental, Social, and Governance (ESG) framework as an integral part of their business strategy. Digital transformation plays a significant moderating role, where technologies such as the Internet of Things (IoT) and artificial intelligence (AI) can accelerate ESG implementation and improve risk management accuracy. However, the Financial Services Authority (OJK) has identified major challenges in its implementation, particularly the limited availability of competent human resources and reliable data, which risks reducing ESG reporting to a mere formality. This study aims to analyse the integration model between GCG and ESG principles in the context of Indonesia's digital economy, identify the role of digital transformation in strengthening the impact of ESG on company performance, and examine regulatory challenges and the role of the OJK in promoting substantive ESG implementation. This study uses a normative juridical method. The analysis focuses on relevant regulatory frameworks, such as OJK Regulation (POJK) No. 51/2017 on Sustainable Finance, as well as a conceptual approach to examining the synergy between GCG theory and ESG principles in the digital era. It was found that the synergy between ESG and GCG significantly improves reputation, resilience, and investor confidence. Digital technology has been proven to increase operational efficiency and risk mitigation in ESG management by 30-60%. The role of the board of directors is crucial in driving ESG performance. However, implementation in Indonesia is still top-down and oriented towards compliance with OJK regulations, while the internal capacity of companies, including human resources and data infrastructure, is not yet fully adequate. The convergence of the digital economy and ESG is shaping a new paradigm of techno-ethical governance. However, its success depends on addressing capacity challenges. It is recommended that regulators such as the OJK shift from merely requiring reporting to facilitating HR capacity building and data standardisation. Companies need to invest strategically in digital technology and talent development to ensure authentic and impactful ESG implementation.

Sustainable and Responsible Investment (SRI) funds – the largest component of the fast‐expanding sustainable financial investment industry – apply environmental, social and governance (ESG) analyses to manage their investment portfolios and are particularly demanding in terms of issuers' disclosure. In this paper we take a step forward and ask whether adopting high‐quality sustainability disclosure is important also for SRI funds' holding companies. Specifically, we introduce a novel metrics on the extent of holding companies' sustainability disclosure based on the quality of their Global Reporting Initiative (GRI) reporting. In parallel, we use a standard approach to measure a fund's ESG intensity, that is, the weighted ESG average of a fund's investments. Indeed, we find that an SRI fund's ESG intensity systematically improves when the associated holding company improves its GRI sustainability disclosure. Moreover, we show that this positive effect of holdings' disclosure on a fund's ESG intensity is larger in jurisdictions with less stringent regulation on disclosure, where the signaling value of GRI disclosure is supposedly heightened. Our results do not seem to be driven by endogeneity between a fund's ESG intensity and its holding company's GRI reporting. First, a fund's ESG investment policy and its holding company's sustainability disclosure policy lie on separate decision ladders. Second, we show that the two variables are empirically uncorrelated. Third, our results prove resilient to a battery of robustness checks. The implication of our finding is that holding companies' sustainability disclosure engagement can reap a benefit for their managed SRI funds – provided ESG ratings are reliable –, whose enhanced credibility might prove a key competitive factor.

Purpose With growing global emphasis on sustainability, environmental, social and governance (ESG) and corporate social responsibility (CSR) has become a key focus for businesses striving to balance profit with social and environmental responsibility. The purpose of this study is to analyze the publication trends, influential sources, authors and countries on ESG literature as well as highlighting future research themes and directions in ESG and CSR domain. Design/methodology/approach This study examined 783 documents published between 2008 and 2024 from two major databases including Scopus and Web of Science by using Biblioshiny (R Studio) and VOSviewer for thematic analysis and network cluster analysis, respectively. Findings The findings demonstrate significant growth in ESG and CSR research, with an upward publication metrics and citation rates. The highest numbers of publications are from developed countries such as USA, China and UK and key journals include Finance Research Letters and Journal of Sustainable Finance and Investment. The cluster analyses identified five key clusters: Transforming Responsible Investing into ESG Investment, Nexus of ESG Practices, Financial Outcomes and Stakeholder Engagement, Aligning ESG Practices with Technological Innovation, Governance and Ethics in Sustainability: CSR-Driven Reporting Practices and ESG Integration and Financial Sustainability. Originality/value This study delineates a comprehensive bibliometric analysis by using a unique diverse keyword search strategy to encompass various aspects of ESG literature and filling gaps in previous studies that relied on limited databases and search query.

This thesis explores the Impact of Sustainable Finance and ESG (Environmental, Social, and Governance) Analytics on contemporary business practices, financial decision-making, and long-term economic sustainability. As global economies grapple with climate change, inequality, and social accountability, the integration of ESG principles in investment and corporate governance has emerged as both a necessity and a competitive differentiator. The study examines the evolution of sustainable finance, key drivers behind ESG adoption, and the role of advanced analytics in ESG evaluation. Using secondary data from global sources such as the UNEP FI, World Bank, Bloomberg, McKinsey, and MSCI ESG Ratings, the research assesses ESG trends and performance outcomes across industries and geographies, particularly focusing on India’s growing ESG landscape. Findings suggest that companies with higher ESG scores tend to experience lower capital costs, better risk-adjusted returns, and stronger investor confidence. Furthermore, regulatory initiatives like SEBI’s BRSR (Business Responsibility and Sustainability Reporting) framework and EU Taxonomy are shaping ESG disclosures and sustainability-linked financing. The thesis concludes that ESG integration is not just a compliance measure but a value-creating strategy. For businesses, it offers insights into reputational risk management, operational efficiency, and stakeholder alignment. Recommendations include the need for harmonized ESG standards, greater transparency in ESG data, capacity-building among Indian firms, and the strategic use of analytics tools for predictive ESG performance.

After corporate governance and corporate social responsibility, ESG practises are the watchword in the Indian corporate environment. ESG is a far wider phrase than corporate governance and corporate social responsibility, as it encompasses a company's environmental, societal and corporate governance policies. ESG are the three pillars of performance that may be used to assess a company's influence on society and environmental sustainability. During the pandemic, these ESG-rated firms grew incredibly popular among investment portfolios. The investor's behaviour in these sustainable investments is also driven by the reputational benefits and a larger risk-reward ratio. It also assists investors in better understanding a firm and gaining insights into how it behaves, reacts, and evolves in response to numerous ESG aspects. Companies who do not adopt sustainable business strategies may find it difficult to raise both stock and loans in the future years. ESG compliance is required for every organisation that is operating well now and hopes to continue to do so in the future. Globally, there are over 3,300 ESG funds, which have quadrupled in the previous decade. This article studies about the sustainability rating, various ESG Mutual Funds in India, forecast the NAV of the ESG mutual funds using ARIMA.

PurposeThis research aims at synthesizing the existing body of literature on the role of environmental, social and governance (ESG) during the Covid-19 global pandemic, identifying the research agenda and perspectives on the role of ESG during times of economic turbulences and pointing to gaps and future research directions in this area.Design/methodology/approachA literature review of academic articles that focus on the role of ESG investments during the Covid-19 pandemic is conducted. These studies are identified based on searching/containing the keywords “ESG”, “Corporate Social Responsibility (CSR)”, “Sustainability” and “Sustainable Finance” in combination with one or more of the following terms: “Covid-19”, “Pandemic” “and Crisis”. Then, the authors explore the key directions/themes in these papers, and highlight the main gaps and areas that are evolving as future research opportunities.FindingsThe empirical findings provide overall compelling evidence in support of the role of ESG during times of crisis, especially when it comes to stock risk and volatility. For example, several studies report that ESG stocks are associated with superior stock performance (higher stock returns and firm value) during the pandemic, while other studies report that ESG act as a risk protection tool during times of crisis, as they document that ESG stocks are associated with lower volatility and lower downside risk during the Covid-19 crisis.Originality/valueTo the best of the authors knowledge, no review of the literature on the role that ESG plays during crises and pandemics has been conducted before. Thus, it fulfills this research gap in the literature.

PurposeThis paper systematically analyzes the literature on environmental, social and governance (ESG). It explores the antecedents, decisions and outcomes (ADO) influencing ESG investments; theories used in the literature; publication years, geographical locations and journals of publication of ESG-related articles; notable gaps in research on ESG investments; theoretical and managerial implications and prospective research avenues within the ESG field. All ESG components are interconnected with the United Nations’ Sustainable Development Goals (SDGs).Design/methodology/approachThe PRISMA framework was employed to screen articles from the Scopus database. A total of 386 articles spanning 2011–2024 were included. The search terms used to screen the articles for inclusion were “sustainable finance,” “ESG,” “environment, social, corporate governance,” “green finance,” “green bond,” “social bond,” “blue bond,” “social finance” and “corporate social responsibility.”FindingsThe findings indicate that organizations utilize green bonds, blue bonds and green loans to mitigate environmental concerns. To address social issues, companies issue social bonds and sustainable bonds and engage in socially responsible investing. To address concerns about corporate governance, companies emphasize corporate social responsibility and intellectual capital.Practical implicationsThe findings can be used to inform policymakers on the implementation of comprehensive regulatory frameworks in the realm of ESG. Tax benefits and subsidies should be extended to firms fostering ESG practices.Originality/valueThis study offers a comprehensive synthesis of the ESG literature by examining the ADO framework, which has not been systematically applied to ESG investments before. It integrates diverse components of ESG investments with the United Nations’ SDGs, providing a unique perspective on how these investments align with global sustainability objectives.

Purpose The aim of this paper is to evaluate the impact of the sustainable financial disclosure regulation (SFDR) on the environmental, social and governance (ESG) performance and risk scores of sustainable funds (SFs) from a multi-regional perspective. Design/methodology/approach This research involves conducting a comparative study between self-labeled SFs and conventional funds of the same mutual fund company matched using a five-step process. Using the SFDR publication as a natural study, this study uses panel data methodology on a portfolio ESG score database before SFDR implementation and three to six months post-SFDR Level 1 requirement to measure the impact. Findings The findings provide evidence of a clear reduction in ESG risk and an improvement in ESG performance across all samples and ESG dimensions following the SFDR regulation. In addition, the results reveal a positive spillover effect of the regulation on conventional funds following its implementation. Research limitations/implications The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market. The study is limited by data availability due to the restrictive matching approach used, which starts with fund pairs from the same fund management company. Practical implications The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market. Originality/value To the best of the authors’ knowledge, there is a lack of research papers that analyze the impact of the SFDR mandatory regulation as a driving force on the ESG scores of the fund market using the same fund management matched pair approach. This paper tests the importance of the investment area through a multi-regional approach to study potential “spillover” effects.

PurposeAssessing the performance and stability of financial institutions is crucial for investors, regulators and stakeholders. The primary purpose of this study was to examine the economic resilience and sustainability performance of banks operating in Türkiye through their capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk (CAMELS) and environmental, social and governance (ESG) scores. The research examined whether there was a significant relationship between the CAMELS and ESG scores of the banks in the sample and how they affected each other.Design/methodology/approachThis study analyzed the relationship between the CAMELS and ESG scores of five public and private banks operating in Türkiye. The study used statistical techniques such as correlation, regression and descriptive statistics to analyze the relationship between the CAMELS and the ESG score clusters. The data in the research cover the period 2008–2022 and were obtained from open sources disclosed to the public by the banks.FindingsThe study found a statistically significant relationship between the financial institutions’ CAMELS and ESG scores. Banks with higher CAMELS scores had a better ESG performance; however, this relationship was not linear. Regression analysis allowed for the identification of factors that had a significant impact on ESG scores within the CAMELS framework. No effect was detected on earnings (E), one of the CAMELS elements in the “economic, environmental, and governance elements” section of the banks' ESG scores. Management quality (M) positively affected only governance (G). Additionally, it was determined that the banks’ environmental performance (ENV) positively affected their CAMELS score.Practical implicationsThe positive relationship between the CAMELS and ESG dimensions shows that financial sustainability is essential. The findings are expected to enrich the understanding of financial institutions’ resilience in the context of Türkiye, which constitutes the research sample. In addition, the inferences that can be made from this Turkish sample are essential for informing investment decisions, regulatory frameworks and broader stakeholder engagement in similar markets.Social implicationsAlthough a significant and positive relationship was established between ESG and CAMELS scores, a substantial and positive relationship only sometimes emerged when the sub-elements of the variables in question were examined. Investing in environmental initiatives helps companies build sustainable business models for the long term, paving the way for future profits and improved capital adequacy and liquidity. However, new regulations and practices related to environmental activities may introduce additional costs, necessitating changes to existing business processes.Originality/valueThis study provides important information regarding the interaction in financial institutions between financial stability assessed by CAMELS scores and sustainability performance measured by ESG scores. The findings show that institutions with robust economic fundamentals demonstrate better ESG performance. This indicates that there is a positive relationship between financial stability and responsible business practices. This information will help investors, regulators and stakeholders to make informed decisions about financial institutions, decisions that focus on sustainability. The results also suggest that it is necessary to use dynamic models and analytical tools to address the link between CAMELS and ESG.

The Impact of ESG Indicators on the Financial Stability of Companies

The global practice of corporate reporting has evolved considerably over the past decades. Corporate managers have to take into account the information needs of stakeholders, which are no longer limited to the company's financial information. Non-financial information such as environmental, social and governance (ESG) disclosures are increasingly required. International organizations and governments are working together to develop ESG disclosure guidelines and standards that companies must, or can, report on ESG activities. Due to emerging ESG regulations, the integration of this non-financial information into the decision-making process is evolving into mandatory business behaviour, so it is important to understand how it can affect a firm's value and financial results. The article examines the origin of the ESG concept, methods of disclosure, motives, and the relationship between ESG and the firm's value and financial results. The results of the scientific literature analysis showed that ESG can influence the value of the company in a direct and indirect way. ESG directly affects Tobin's Q and stock prices and indirectly influences a company's value through financial performance (return on assets and equity and leverage). However, the impact does not occur in the short term due to the high implementation costs and the scale of the projects.

Socially Responsible Investment (SRI) refers to the allocation of funds in certain practises that have a high social impact. It includes assessing businesses on the Environmental , Social and Governance (ESG) screens. A socially conscious investor may either invest directly in financial markets or through investment instruments such as mutual funds via ESG fund schemes. Very few of the numerous mutual fund organizations have implemented ESG Fund schemes to appeal to SRI investors. The SBI Mutual Fund is the first AMC to follow this and has been benchmarked against the Nifty 100 ESG indices. A correlation analysis is made among the results of the SBI Mutual Fund and the NIFTY to compare the four different types of SBI ESG funds and their sector wise participation in different industries. This research paper is methodological in nature as it interprets the published secondary data sources of the SBI Mutual Fund and the NIFTY indices. The goal of this paper is to assess the efficacy of the ESG Equity Fund in the investment portfolio of mutual fund investors and to enable small and medium-sized investors to contribute their money to ESG-driven mutual fund schemes.