In recent years, investments based on ESG (Environmental, Social, Governance) criteria have gained significant importance in the financial world. The integration of ESG parameters into investment decisions is not merely a trend but a strategy that influences capital markets on a global scale (Bissoondoyal-Bheenick, Brooks, and Do, 2023). This analysis examines the dynamics of ESG investments, their implications for markets, and their impact in both theory and practice.
ESG investments have grown exponentially, with funds directed toward sustainable investment options surpassing $40 trillion globally in 2022 (The Future of ESG Investing, 2022). The growth of these investments is closely linked to increasing awareness of climate change, social equality, and transparency in corporate governance. Additionally, regulatory frameworks such as the Sustainable Finance Disclosure Regulation (European Commission, 2023) have enhanced transparency and accountability, pushing businesses to comply with sustainable criteria.
Investors, particularly institutional ones, increasingly choose companies with high ESG scores, believing these firms have reduced risk and offer long-term performance (Avramov et al., 2022). However, concerns persist about the divergence in ESG ratings among different evaluation agencies, raising questions about their effectiveness and reliability. The rise of ESG investments has created new dynamics in capital markets. The financial sector has begun to offer innovative products, such as green bonds and social bonds, to meet investor demand (Bhutta et al., 2022; Torricelli and Pellati, 2023). These products have attracted significant capital, impacting market structures and returns.
The increasing popularity of ESG investments demonstrates the connection between theory and practice. In theory, ESG criteria are integrated into risk valuation models and portfolio management strategies. In practice, investors adopt such approaches to evaluate companies, considering not only financial metrics but also social and environmental dimensions. Consequently, adopting ESG investments represents a critical step toward sustainable development—one that investors appear willing to take. ESG investments are not just a tool for generating returns but also a strategy for shaping a more sustainable future.
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