Received:
2024-10-13 | Accepted:
2025-01-20 | Published:
2025-03-30
Title
Determinants of ESG sustainability in financial systems: a fuzzy cognitive approach with a focus on Georgia
Abstract
Sustainable finance has gained momentum over the last several years amid increasing environmental and social challenges. This research seeks to characterise Environmental, Social, and Governance (ESG) sustainability within the financial sector as a novel concept, identifying its core determinants, evaluating and modelling relationships among them, and subsequently analysing various scenarios for enhancing ESG Sustainability. To this end, a fuzzy cognitive map construction and modelling method was employed. Through a multi-stage process, a fuzzy cognitive map of ESG Sustainability was developed using Georgia's financial sector as a case study. The main findings identified ten fundamental factors influencing ESG Sustainability within the financial sector and evaluated the causal relationships among them. According to experts' assessments, the Local Sustainable Finance Regulatory Framework and the Involvement of International Financial Institutions are particularly important among these key fundamental factors. Additionally, the scenario analysis revealed that targeted improvements in the key factors could significantly enhance ESG Sustainability.
Keywords
sustainability, responsible business practice, sustainable finance, Environmental, Social, and Governance (ESG), sustainability, Fuzzy Cognitive Map (FCM)
JEL classifications
E58
, G20
, G28
, G32
, G38
, Q01
, Q56
, C63
, C80
, O16
URI
http://jssidoi.org/jesi/article/1273
DOI
Pages
10-21
Funding
This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License
References
https://scholarsarchive.byu.edu/cgi/viewcontent.cgi?article=4289&context=iemssconference
Search via ReFindit
Basel Committee on Banking Supervision (BCBS). (2021). Climate-related risk drivers and their transmission channels. https://www.bis.org/bcbs/publ/d517.pdf
Search via ReFindit
Bolton, P., Despres, M., Da Silva, L. A. P., Samama, F., & Svartzman, R. (2020). The Green Swan: Central banking and financial stability in the age of climate change. BIS Books. https://www.bis.org/publ/othp31.pdf
Search via ReFindit
Carney, M. (2015). Breaking the tragedy of the horizon: Climate change and financial stability [Speech]. Lloyd’s of London. https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stability
Search via ReFindit
Cull, R., Gill, I., Pedraza, A., Ruiz-Ortega, C., & Zeni, F. (2024). Mobilising private capital for the Sustainable Development Goals (No. 10838). The World Bank. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099515007022422343/idu1c22e2ec41eee514d2d19dfb115b648d7fa6f
Search via ReFindit
Dikopoulou, Z., Papageorgiou, E., Jetter, A., & Bochtis, D. (2018). Open source tool in R language to estimate the inference of the Fuzzy Cognitive Map in environmental decision making. 9th International Congress on Environmental Modelling and Software - Ft. Collins, Colorado, USA - June 2018.
Search via ReFindit
Dunbar, K., Sarkis, J., & Treku, D.N. (2024). FinTech for environmental sustainability: Promises and pitfalls. One Earth, 7(1), 23-30. http://doi.org/10.1016/j.oneear.2023.12.012
Search via ReFindit
Edwards, G. I., & Kok, K. (2021). Building a Fuzzy Cognitive Map from stakeholder knowledge: An Episodic, asynchronous approach. Current Research in Environmental Sustainability, 3, 100053. http://doi.org/10.1016/j.crsust.2021.100053
Search via ReFindit
EU Commission. (2018). Action Plan: Financing Sustainable Growth. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097
Search via ReFindit
G20 Sustainable Finance Study Group. (2018). Sustainable Finance Synthesis Report. https://unepinquiry.org/wp-content/uploads/2018/11/G20_Sustainable_Finance_Synthesis_Report_2018.pdf
Search via ReFindit
Intergovernmental Panel on Climate Change (IPCC). (2018). Global Warming of 1.5°C: Summary for policymakers. https://www.ipcc.ch/sr15/chapter/spm/
Search via ReFindit
International Capital Market Association (ICMA). (2020). Sustainable Finance High-Level Definitions. https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Sustainable-Finance-High-Level-Definitions-May-2020-051020.pdf
Search via ReFindit
Jetter, A. J., & Kok, K. (2014). Fuzzy cognitive maps for futures studies—a methodological assessment of concepts and methods. Futures, 61, 45-57. http://doi.org/10.1016/j.futures.2014.05.002
Search via ReFindit
Kakulia, N. (2017). The Characteristics of Transformation of Institutional Changes and Georgia. World academy of science, engineering and technology, conference proceedings. Berlin, Germany. https://www.gotriple.eu/documents/ftzenodo%3Aoai%3Azenodo.org%3A1130235
Search via ReFindit
Khamisu, M.S., Paluri, R.A., & Sonwaney, V. (2024). Stakeholders' perspectives on critical success factors for environmental social and governance (ESG) implementation. Journal of Environmental Management, 365, 121583. http://doi.org/10.1016/j.jenvman.2024.121583
Search via ReFindit
Kosko, B. (1986). Fuzzy cognitive maps. International Journal of Man-Machine Studies, 1, 65-75. 80040-2 http://doi.org/10.1016/S0020-7373(86)
Search via ReFindit
Lui, T.K., & Zainuldin, M.H. (2024). From boardroom to sustainability reporting: stakeholder-RBV insights into ESG disclosures among Malaysian banks. Bottom Line http://doi.org/10.1108/BL-04-2024-0046
Search via ReFindit
Monasterolo, I. (2020). Climate change and the financial system. Annual Review of Resource Economics, 12(1), 299-320. https://doi.org/10.1146/annurev-resource-110119-031134
Search via ReFindit
National Bank of Georgia. (2023). ESG Guidelines through double materiality perspective. https://nbg.gov.ge/en/page/esg-guidelines
Search via ReFindit
Network for Greening the Financial System (NGFS). (2019a). A call for action: Climate change as a source of financial risk. https://www.ngfs.net/sites/default/files/medias/documents/ngfs_first_comprehensive_report_-_17042019_0.pdf
Search via ReFindit
Network for Greening the Financial System (NGFS). (2019b). Macroeconomic and financial stability: Implications of climate change. https://www.ngfs.net/sites/default/files/medias/documents/ngfs-report-technical-supplement_final_v2.pdf
Search via ReFindit
Olazabal, M., Chiabai, A., Foudi, S., & Neumann, M. B. (2018). Emergence of new knowledge for climate change adaptation. Environmental Science & Policy, 83, 46-53. http://doi.org/10.1016/j.envsci.2018.01.017
Search via ReFindit
Organisation for Economic Co-operation and Development (OECD). (2024a). OECD review on aligning finance with climate goals. https://www.oecd.org/en/publications/oecd-review-on-aligning-finance-with-climate-goals_b9b7ce49-en.html
Search via ReFindit
Organisation for Economic Co-operation and Development (OECD). (2024b). Towards assessing the alignment of finance with climate resilience goals. https://www.oecd.org/en/publications/towards-assessing-the-alignment-of-finance-with-climate-resilience-goals9446d65e-en.html
Search via ReFindit
Organisation for Economic Co-operation and Development (OECD). (2024c). The new collective quantified goal on climate finance. https://www.oecd-ilibrary.org/environment/the-new-collective-quantified-goal-on-climate-finance_7b28309b-en
Search via ReFindit
Özesmi, U., & Özesmi, S. L. (2004). Ecological models based on people’s knowledge: a multi-step fuzzy cognitive mapping approach. Ecological Modelling, 176, 43-64. http://doi.org/10.1016/j.ecolmodel.2003.10.027
Search via ReFindit
Papageorgiou, K., Singh, P. K., Papageorgiou, E., Chudasama, H., Bochtis, D., & Stamoulis, G. (2019). Fuzzy cognitive map-based sustainable socio-economic development planning for rural communities. Sustainability, 12(1), 305. http://doi.org/10.3390/su12010305
Search via ReFindit
Somogyi, T., & Nagy, R. 2022. Some impacts of global warming on critical infrastructure protection - heat waves and the European financial sector. Insights into Regional Development, 4(4), 11-20. https://doi.org/10.9770/ird.2022.4.4(1)
Search via ReFindit
Turhan, G.T., Tokal, P., & Sart, G (2023). The Role of Financial Sector Development and Educational Attainment in the Achievement of Economic Sustainability: Evidence from BRICS Economies. Sustainability, 15(6), Article Number 5527 http://doi.org/10.3390/su15065527
Search via ReFindit
Tvalodze, S. (2023). Transmission Channels of Sustainability-related Financial Risks; VIII International Scientific Conference "Challenges of Globalization in Economics and Business", Tbilisi State University, 3 November, 2023. https://tsu.ge/assets/media/files/7/Globalizacia%20ekonomikisa%20da%20biznesshi%20-%208.pdf
Search via ReFindit
Tvalodze, S., Nikuradze, E. (2023). Biodiversity-related Financial Risks – Why it matters and how can we measure them? Case study of Georgia, National Bank of Georgia (NBG) WP 02/2023. https://nbg.gov.ge/fm/wp/nbg-wp-2023-02.pdf?v=vcy6j
Search via ReFindit
United Nations (UN). (2024). The 2024 Financing for Sustainable Development Report (FSDR 2024). https://desapublications.un.org/publications/financing-sustainable-development-report-2024
Search via ReFindit
Voinov, A., & Gaddis, E.B. (2017). Values in Participatory Modeling: Theory and Practice. In: Gray, S., Paolisso, M., Jordan, R., Gray, S. (eds) Environmental Modeling with Stakeholders. Springer, Cham. https://doi.org/10.1007/978-3-319-25053-3_3
Search via ReFindit
Yuan, X.H., Murshed, M., & Khan, S. (2023). Does the depth of the Financial Markets matter for establishing Green Growth? Assessing Financial sector's potency in decoupling Economic Growth and Environmental Pollution. Evaluation Review, 47(6), 1135-1167. https://doi.org/10.1177/0193841X221145777
Search via ReFindit
RSS 1.0
