Sustainable Finance and responsible investment: Exploring the role of corporate governance and ethical decision-making

The strengthening of globalisation processes together with the climate change, the slowdown of the world economy, and growing income inequality have a profound impact on the transformation of the global economic and socio-political landscape and make the theme of sustainable development progressively more relevant. The environmental trend within the humancentered trajectory of civilization affects the financial sphere through the introduction of the Environmental, Social, and Governance (ESG) criteria in financial decision-making, creation of appropriate institutions and accumulation of financial resources, as well as transformation of financial systems’ functions. Against a background of these trends, responsible investment, or ESG investing, which takes into account environmental, social and managerial factors when choosing investment strategies, receives a significant boost. The aim of the research is to formulate new approaches to expanding responsible investment in the economy in the context of developing sustainable finance. The methodological basis of the research includes the concepts of sustainable development, finance and investment. The study uses a dialectical method to investigate the dynamics of economic phenomena, their interrelation and interdependence; and a system approach to the object of research implemented through graphic representation, grouping and comparison, analysis and synthesis. The paper summarises the theory and practice of responsible investment, examines the trends in the responsible investment market as well as its peculiarities. The authors prove the need to encourage responsible investment within the sustainable finance framework by removing information and structural restrictions. This will ensure the development of responsible investment tools and gain greater reputational advantages for companies. The authors produce recommendations for organising this process, in particular, to employ international practices and adopt the corresponding government policy.

The article discusses the main theoretical and methodological approaches and indicators used in the analysis and evaluation of financial sustainability. A number of scientific publications concerning the financial sustainability issue have been summarized and presented. The study showed that there are a number of understandings and formulations of conceptual and methodological approaches in determining financial sustainability. Financial sustainability is the most important feature of long-term financial performance. The actuality of the analysis of the financial sustainability of the enterprise is indisputable given the key features of the business environment, such as instability and uncertainty, which have a destabilizing effect on business activity. Financial sustainability is formed in the course of economic activity and is an essential element of overall economic sustainability. That is why the broader concept - financial and economic sustainability is used in the research of a number of analysts. The definition, analysis and prognosis of financial sustainability are prerequisites for developing adequate strategies and programs aimed at preserving the integrity of the enterprise and its continuous activity. For the purpose of the financial sustainability analysis, certain criteria and a system of quantitative and qualitative indicators are used to determine its availability. The indicator system also makes it possible to identify the factors influencing financial sustainability. The main purpose of the study is to present the different theoretical-methodological approaches and criteria for determining financial sustainability. The tasks resulting from this purpose are to specify the concept of "financial sustainability" and to present the indicators for assessing financial sustainability.

The aim of the article is to explore the level of development and maturity of the concept of sustainable financing, examine its components and defining characteristics, and assess the trends in its development. Several research questions have been formulated: What is the essential content of the definition of «sustainable financing», and what evolutionary changes have occurred in the conceptual approach to financing sustainable development? What can be identified as the peculiarities of the concept of sustainable financing and the content and changes in its main components? What is the current state of development of the global and European sustainable investing market and its prospects for development? It was established that evolution of the concept has led to fundamental shifts in the understanding of investment principles and distinctions between responsible investing and sustainable development investing based on ESG principles: under the former approach, the goal of financial market participants is to mitigate the risks associated with transitioning to sustainable development, while under the second approach - to benefit from the realization of sustainable development opportunities. The opinion is expressed that based on the set of signs and patterns, it is possible to state a break in the existing system of views on capital allocation processes in financial markets, and according to the degree of maturity, this break indicates the transition from the "concept" to the "paradigm" of sustainable financing. It is argued that the peculiarities of sustainable financing are determined by its components, its goal function, the diverse spectrum of financial market participants, and the financial instruments. Sustainable finance has been found to help transform both economies and societies through more responsible development and investment around the world, but its development trends in recent years have been influenced by geopolitical factors such as pandemics and war.

This research explores the landscape of sustainable finance, responsible investment, and ESG (Environmental, Social, and Governance) risk evaluation, aiming to understand their complexities and implications for financial markets and sustainability outcomes. Employing a qualitative research approach, the study conducts a comprehensive review and synthesis of existing literature, drawing insights from academic databases, journals, reports, and other relevant sources. The research design involves purposive sampling of literature based on relevance, rigor, credibility, and significance criteria. Data collection comprises systematic review and analysis of scholarly literature, while thematic analysis is employed for data interpretation. The findings underscore the growing recognition of ESG factors' importance in investment decision-making processes, driven by their materiality to financial performance and sustainability outcomes. Institutional investors play a pivotal role in mainstream adoption of responsible investment practices, driven by the acknowledgment of ESG factors' impact on investment risk and return profiles. However, methodological challenges related to ESG data quality, measurement, and comparability persist, hindering effective ESG integration and risk assessment. Regulatory initiatives like the United Nations Principles for Responsible Investment (PRI) and the Task Force on Climate-related Financial Disclosures (TCFD) have contributed to mainstreaming ESG considerations but face challenges of regulatory fragmentation and inconsistencies. Addressing these challenges requires collaborative efforts from stakeholders to develop standardized ESG reporting frameworks, enhance stakeholder engagement, and promote regulatory coherence. This study contributes to understanding sustainable finance dynamics and calls for interdisciplinary collaboration to bridge financial theory, sustainability science, and regulatory policy.

Based on institutional theory, I extend research on the regulative role of national government in society and suggest that government exerts important influences on firms’ actions through the diffusion of norms. I suggest that the Norwegian government, by instituting an ethical council that publicly censors and certifies the cross-border investments of the Norwegian sovereign wealth fund Government Pension Fund Global, contributes to the professionalization of responsible investment principles and thus plays a normative role in shaping firms’ investments. Employing a quasi-natural experiment, I find that focal Norwegian firms are more likely to make responsible cross-border investments following the formation of the Council on Ethics in 2004 and its associated censorship announcements. Further, I find that the normative pressure for responsible investments is mediated by firms’ imitation or overlap with the Norwegian sovereign wealth fund’s investments. However, the mediated effect of normative pressure on responsible investments becomes weaker for government-owned firms. These findings highlight the importance of normative mechanisms through which government can influence firms’ behavior, especially in contexts where regulatory authority may not hold. Moreover, these findings reveal the interplay among the normative, mimetic, and regulative pressures and the heterogeneity in the extent to which firms within the same country demonstrate institutional isomorphism.

The concept of sustainable finance has emerged as a critical approach to harmonizing financial objectives with sustainability principles. Sustainable finance is characterized as a comprehensive method of managing financial resources that incorporates economic, social, and environmental factors, with the primary objective of channeling capital towards initiatives and projects that contribute to sustainable development. This article examines the fundamental theories and models underpinning sustainable finance and emphasizes the crucial importance of integrating environmental, social, and governance (ESG) considerations into financial decision-making processes to identify and manage risks, safeguard long-term investments, and stimulate innovation. The recent evolution of sustainable finance at global and European levels is analyzed, highlighting the significant growth in responsible investments and the diversification of sustainable financial instruments. The challenges and opportunities in implementing sustainable finance are examined, with a particular focus on the perspectives of the Republic of Moldova in this context. The article concludes by underscoring the necessity of a comprehensive integration of sustainability principles into financial processes to create lasting value for all stakeholders and contribute to a more sustainable future, while also providing insights into the future directions of sustainable finance.

ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

We construct optimal portfolios of mutual funds whose objectives include socially responsible investment (SRI). Comparing portfolios of these funds to those constructed from the broader fund universe reveals the cost of imposing the SRI constraint on investors seeking the highest Sharpe ratio. This SRI cost depends crucially on the investor's views about asset pricing models and stock-picking skill by fund managers. To an investor who believes strongly in the CAPM and rules out managerial skill, i.e. a market-index investor, the cost of the SRI constraint is typically just a few basis points per month, measured in certainly-equivalent loss. To an investor who still disallows skill but instead believes to some degree in pricing models that associate higher returns with exposures to size, value, and momentum factors, the SRI constraint is much costlier, typically by at least 30 basis points per month. The SRI constraint imposes large costs on investors whose beliefs allow a substantial amount of fund-manager skill, i.e., investors who rely heavily on individual funds' track records to predict future performance.

Energy is one of the key factors of production globally and its importance can never be underestimated. However, the current major source of energy is from fossil fuels. These fuels are not only unsustainable but also pollute the environment resulting in "global warming and climate change" with devastating effects on living and non-living things alike. This has called for the world to transition into a new energy economy by 2050. This involves the introduction of sustainable and environmentally friendly energy sources to phase out the energy from fossil fuels. This agenda has a huge financial implication, especially for the developing economies. In this chapter, we discuss sustainable and responsible energy investment, the role of environmental, social and governance (ESG) in energy investment in the new energy transition, financing the new energy for an inclusive green economy, creating an energy ESG Index for energy industry analysis, challenges and opportunities of sustainable and responsible investment (SRI) in the energy sector.

Sustainable finance has become a global concern as the need for a more inclusive and socially and environmentally responsible economic system increases. In the context of Islamic finance, the principles of maqashid syariah provide a strong normative foundation for developing sustainable finance concepts based on ethics, justice, and balance. This study aims to analyze how maqashid syariah can serve as a foundation for implementing sustainable finance by examining Islamic financial instruments such as green sukuk, productive waqf, as well as mudharabah and musyarakah schemes. The method used in this research is library research with a qualitative approach, where data is collected from various academic sources such as books, journals, and research reports related to Islamic finance and sustainability. The study’s findings indicate that the principles of maqashid syariah align with the objectives of sustainable finance, particularly in economic justice, equitable wealth distribution, and socially and environmentally responsible investments. The implementation of Islamic financial instruments supporting sustainable development has been observed in several countries, such as Malaysia and the United Arab Emirates, which have adopted Environmental, Social, and Governance (ESG)-based regulations. However, challenges such as a lack of Islamic financial literacy, regulatory limitations, and insufficient innovation in financial instruments remain major obstacles to implementing sustainable Islamic finance. Therefore, this study recommends strengthening policies, improving Islamic financial literacy, and fostering innovation in syariah-compliant financial instruments to enhance the integration of maqashid syariah into the sustainable finance system. Keywords: sustainable finance, perspective, maqashid syariah

PurposeThe purpose of this paper is to investigate the association between gender diversity on the audit committees and the incidence of financial restatements.Design/methodology/approachUsing a sample of 683 firm-year observations from Iranian listed companies for the period 2013 to 2017, this paper uses a logistic regression model to examine a research hypothesis related to the association between the presence of female members on the audit committee and the incidence of financial restatements.FindingsAfter controlling for other restatement-related factors, the authors find that the presence of at least one female member on audit committees reduces the likelihood of the incidence of financial restatements. Robustness tests also confirmed this result. Moreover, the additional analyses show that independent and financial expert female members on audit committees are more strongly associated with a reduction in financial restatements. Further, the results suggest that the presence of female members on the audit committee can increase the likelihood of hiring higher quality auditors. Generally, the findings are consistent with the literature on gender diversity which suggests that women perform better in a monitoring role, are more conservative and make more ethical decisions.Practical implicationsThe findings of this study could help with the understanding of broader participation of female directors on company boards and subgroups such as the audit committee, and of the improvement in corporate governance. Moreover, the findings can be of particular interest to monitoring authorities and policy makers in developing countries and send positive signals to them regarding the recommendation or requirement of gender diversity as a part of corporate governance mechanisms.Originality/valueThe present study contributes to the extant literature by providing empirical evidence on the effect of audit committee gender diversity on financial restatements. Furthermore, this study provides evidence on the more effective oversight and greater ability of independent and financial expert female directors, which has been significantly disregarded in the previous studies.

This research analyzes the risk-adjusted returns and the investment style of sustainability-themed funds, a fast-growing category of sustainable and responsible mutual fund. Sustainability-themed funds are compared with sustainable and responsible mutual funds that implement different approaches in portfolio selection and management, and with thematic funds not involved in responsible investment strategies. The study uses a European sample of 1512 mutual funds where 468 are sustainability-themed funds, 633 are other sustainable and responsible funds, and 411 thematic funds. Monthly performance and fund characteristics are analyzed for the period 2007–2017 using a single factor Capital Asset Pricing Model (CAPM), a Fama and French (1993) 3-factor model, and, lastly, a Fama and French (Journal of Financial Economics, 116: 1–22, 2015) 5-factor model. The analysis is extremely innovative. During the last 15 years, literature about sustainable and responsible investment has focused on the differences in terms of risk and performance between socially responsible and conventional funds. Starting from the methodology applied in previous studies, and in light of their exponential growth in recent years, this paper focuses on sustainability-themed mutual funds. We demonstrate that sustainability-themed funds differ in terms of risk, performance, and investment style from other funds that implement social responsible strategies and from thematic funds focusing on a specific theme, but not responsible investment.

Notwithstanding the highly laudable efforts of the Principles for Responsible Investment and other Environmental, Social, and Corporate Governance (ESG)-related trade groups and organisations, Responsible Investment (RI) has still to be mainstreamed in the financial services industry. Despite hugely increased awareness, implementation still lacks depth across many financial institutions. The major challenge is that mainstreaming RI effectively involves a system change—a paradigm shift that, amongst other things, will require a corresponding culture change within the world of institutional investors and with it a higher degree of knowledge skills and expertise. This is no easy task: at a fundamental level, it is proving difficult to change or redirect the financial services sector. Even following the global financial crisis it would appear that, rather than change, the system has, in broad terms, merely been repaired with largely the same people doing similar things as before, albeit in a tighter and less permissive regulatory environment. Genuine global industry ESG integration and adoption of RI will require additional efforts and a greater diversity and depth of knowledge, skills, and understanding from an employee’s entering or wishing to flourish in the sector. It is in this aspect that business schools and other higher education facilities can play a leading and hugely significant role to address some of the current gaps. This chapter addresses how sustainability thinking can be embedded in finance curriculum.

BackgroundThere is a lack of knowledge about the ways physiotherapists around the world learn about professional code of ethics and ethical decision-making frameworks. The profession has a gap in the understanding about physiotherapists’ views on factors that play a role in ethical decision-making and whether these views differ between World Physiotherapy regions.MethodsAn online survey study in English was conducted from October 2018 to October 2019. Participants included 559 physiotherapists located in 72 countries. The self-designed survey questionnaire contained 13 items asking about demographic information and means of learning about ethical codes and decision-making frameworks. A further 30 items were presented which included statements underpinned with individual, organisational, situational and societal factors influencing ethical decision-making. Participants were asked to express their level of agreement or disagreement using a 5-point-Likert-scale.ResultsParticipants’ highest rated responses endorsed that the professional role of physiotherapists is linked to social expectations of ethical behaviour and that ethical decision-making requires more skills than simply following a code of ethics. A recognisable organisational ethical culture was rated as supporting good ethical decisions. Comparing responses by World Physiotherapy regions showed significant differences in factors such as culture, religion, emotions, organisational values, significant others, consequences of professional misconduct and professional obligations. Entry level education was not perceived to provide a solid base for ethical decision-making in every World Physiotherapy region. Participants reported multiple sources for learning about a professional code of ethics and ethical decision-making frameworks. What’s more, the number of sources differed between World Physiotherapy regions.ConclusionsMultiple factors play a role in physiotherapists’ ethical decision-making internationally. Physiotherapists’ ethical knowledge is informed by, and acquired from, several learning sources, which differ in both quality and quantity amongst World Physiotherapy regions. Easily accessible knowledge and education about professional codes of ethics and ethical decision-making can foster continuing professional development for physiotherapists. The establishment of constructive ethical cultures in workplaces can improve ethical decision-making, and should acknowledge the influence of individual, organisational, situational and societal factors. The establishment of collaborative learning environments can support knowledge translation which acknowledges practice-based methods of knowing and learning.

This study presents a scientometric analysis of the global research landscape on sustainable finance using data retrieved from the Scopus database. By employing VOSviewer for bibliometric mapping, the study identifies major themes, influential authors, collaborative networks, and temporal trends within the literature published between 2000 and 2025. The analysis reveals that sustainable finance is anchored around core topics such as green finance, climate change, ESG performance, and responsible investment, while new themes like financial inclusion, digital finance, and greenwashing are gaining prominence. Keyword co-occurrence and overlay visualizations highlight the dynamic evolution of research interests, shifting from environmental and policy-centered discussions toward technologically driven and socially responsive financial practices. The study also maps institutional and country-level collaborations, identifying dominant players as well as regions with emerging contributions. This comprehensive overview provides valuable insights for researchers, policymakers, and financial practitioners seeking to understand the intellectual structure of sustainable finance and to identify strategic directions for future inquiry and action.