FINA 3319

Green Finance and Impact Investing

 Course Introduction
• Course Assessment
• Environmental, Social and Governance
• Chapter Nine

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 FINA 3319 Assessment
• Essays and Calculations 20%
• Participation in real green projects 30%
• Individual Final ESG Report 30%

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 Course Description
• Global warming and environmental concerns have become urgent issues and
financial solutions are being sought after. Green finance is designed to support
sustainable, climate friendly growth. Institutional investors, corporate
managers and government organizations are actively participating in this
area. Many impact funds are being set up every year. This course introduces
the recent development in the financial market on green finance such as
green bonds. Impact investing such as activism will be analyzed. The rising
importance and implementation of environmental, social and governance
(ESG) for investment will be studied. Other related topics are accounting,
certification, and reporting of green projects.

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 Key Literatures and Course Materials

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Regulatory Changes
for ESG Report
Impact Investing
 (I) Regulatory Changes on ESG Disclosures and Reporting
• According to Bergman et al. (2020), standards of disclosure developed through the
intergovernmental and non-governmental organization in their policy and initiatives. ESG
disclosures and frameworks are widely developed which bound by impact investors
(Bergman, 2020).
• Regulators are getting more pragmatic about policy and initiatives which implied ESG
proactively into law and legislative practices. Regulations towards ESG have become
directive and legislation, applied from listed companies to private enterprise, and activists
from board of directors to investment managers (Bergman, 2020).
• ESG focus have shifted from ESG investment business performance disclosures to ESG risk
reporting. (Bergman, 2020). This would allow for better allocation of capital to achieve
ESG opportunities and could better manage the ESG risks (Bergman, 2020).

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 (II) ESG performance and investment efficiency on
information asymmetry
• Erdogan et al. (2024) indicated that firms’ engagement in ESG and investment efficiency is
correlated with information asymmetry. ESG engagement decreases with overinvestment
scenarios, and underinvestment scenarios, ESG engagement would benefit from higher
information asymmetry (Erdogan, 2024). Corporate investment efficiency that said associated
with ESG performance and information asymmetry (Erdogan, 2024).
• Arguably asymmetry information could reduce agency problems and minimize conflicts between
stakeholders. ESG firms that positively contributed to CSR would have enhanced their corporate
values and performances (Erdogan, 2024). ESG firms that could have improve when their
underinvestment scenario interacted with higher information asymmetry, in another words that
could enhance ESG performance (Erdogan, 2024).
• Erdogan emphasized that EU issued directives of the Sustainable Finance Disclosure Regulation
and the Corporate Sustainability Reporting, that EU enterprises provide regulatory oversight
incorporating broad principles on ESG disclosures (Erdogan, 2024).

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 (III) Impact of ESG disclosures and financial reporting quality
interacting with investment efficiency

• Ellili (2022) indicated that ESG disclosures have positive relationship with financial
reporting quality and investment efficiency. According to Ellili (2022), ESG disclosures
improve transparency, mitigate problem arise with information asymmetry and
enhanced investment efficiency.
• Ellili (2022) research findings supported that impact investment of UAE companies in
accordance to social environment and climate change could improve with financial
reporting quality.

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 (IV) ESG and Sustainability for due diligence
• Companies in EU would have to conduct due diligence throughout their entire value chain according to
new rules and legislation changes. EU business partners on their input as well as output side would
require to consider the new disclosure regulation (PWC, 2024). Businesses would analyze their value
chains and identify potential risks and impacts, such as human rights violations, environmental
pollution, and corruption (PWC, 2024). This process would require businesses to collect and analyze
data from a range of sources, including suppliers and other business partners (PWC, 2024).
• New legislation changes ESG documents that requiring companies to disclose sustainable information.
REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June
2020 on the establishment of a framework to facilitate sustainable investment (PWC, 2024). EU
Taxonomy Regulation, that has already in force since July 2020 which align with the latest changes
(PWC, 2024).
• Corporate Sustainability Reporting Directive (CSRD), in force since 1 June 2023, the European
Parliament agreed its position on the proposal for the Directive on Corporate Sustainability Due
Diligence (“CSDDD”) as part of its “Just and sustainable economy” package. The final adoption of the
CSDDD is expected in 2024 (PCW, 2024).

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 (V) Rules and Regulation Changes
Exhibit
Legislation on EU companies and new changes
• Directive on Corporate Sustainability Due Diligence (CSDD, still on progress)
• Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a framework for setting eco-design
requirements for sustainable products (PWC, 2024).

Source: PWC, 2024.

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 (VI) Sustainable Finance Disclosure Standards (SFDR)

• The Global ESG Disclosure Standards for Investment Products and the provisions, with
the requirements in “Regulation (EU) 2019/2088 of the European Parliament and of the
Council of 27 November 2019 on sustainability-related disclosures in the financial
services sector” and the “JC 2021 50 Final Report on draft Regulatory Technical
Standards” issued by the Joint Committee of the European Supervisory Authorities on
22 October 2021.
• These two documents are referred to collectively as “SFDR”.

Source: Value Partners, 2024.

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 Exhibit
Global ESG Disclosure Standards versus SFDR

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 Exhibit
SFDR Article extracts Article 3-5

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 Exhibit

SFDR Article extracts Article 6-8

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 Exhibit
SFDR Article extracts Article 6-8

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 Exhibit
SFDR Article extracts Article 8-13

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 Exhibit
SFDR Article extracts Article 8-13

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 Exhibit
SFDR Article extracts Article 9

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 (VII) Investor disclosures and reporting
• According to U.N. Principles of Responsible Investment (PRI), principles are included to
seek appropriate disclosure of ESG securities by investee companies. Principles are
also required to report on ESG investing activities and progress towards implementing
of Principles of Responsible Investment.

(VIII) Sustainable Development Goals

• U.N. Development Program releases new standards aim to guide managers and issuers
to direct investment towards Sustainable Development Goals (SDGs). During the
process of meeting related goals and guidelines on reporting of development and
progress in ESG assessment frameworks.

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 (IX) Task Force on Climate Related Financial Disclosures
• Initiative in recognition and climate related financial disclosures, which information is
perquisite for financial firms not just manage and price climate risk on lending,
investment, insurance underwriting based on their view of transition scenarios. FTSE
100 companies make reference TFCD and numbers of financial reporting is growing.

(X) Non-governmental ESG Frameworks

• Carbon disclosure projects established environmental disclosure platforms for
standardized information from companies on climate changes and use of natural
resources in disclosure environment data.

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 (XI) Global Reporting Initiatives (GRI)
• GRI requires their own standard for reporting ESG Impacts globally through multi
stakeholders globally, i.e. impacts of critical of sustainability issues such as climate
change, human rights, governance, and social issues and well-being to improve
performance.

(XII) Sustainability Accounting Standard Board

• Sustainability Accounting Standard Board (SASB) helps the public companies to
disclose material and decision useful ESG information top investors mandatory on
their filing under their notion based on their regulatory material information to
disclose.

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 (XIII) OECD Multinational Business Guideline
• OECD multinational business guideline and EU ESG regulatory regime encourage and to
enhance transparency that includes practices and failures to demonstrate ESG claims with
robust data and analytics disclosure.
• Among the 9 core pillars, in which 4 related to effectiveness in disclosures and reporting. Non-
financial directive reporting, Second Shareholder Rights Directive, Sustainable Financial
Disclosure Regulation and Climate Benchmark Regulation, empowering investment decisions
made from well informed decisions.

(XIV)IFRS announced new ESG reporting standards

• According to KPMG (2024), based on the Sustainability Standard Board set in parallel with
the International Accounting Standards Board under the IFRS Foundation which set report
standard on climate disclosure.

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Citation
Socially Responsible Investing (SRI) with ESG Mandates
 Bibliography
• “Global ESG Disclosure Standards for Investment Products: SFDR Comparison”, CFA, 2021, 2023.

• Nicholas, Simon, “IFRS new sustainable reporting”, KPMG, 2024.

• “ESG reporting and preparation of a Sustainability Report”, PWC, 2024.

• “The EU ESG Regulatory Regime: A Detailed Guide” Factset Insight, 10 August, 2020.

• Ellili, Nejla, “ Impact of ESG disclosure and financial reporting quality on investment efficiency”, Journal of
Corporate Governance, Vol 22, Number 5, pp1094-111, 14 June 2022.

• Erdogan, Seda; Danisman, Gamze; Demir Ender, “ ESG performance and investment efficiency: The impact
of information asymmetry”, Markets, Institutions and Money Journal, Volume 91, March 2024.

• Bergman, Mark; Karp, Brad; Rosen, Richard; Weiss, Paul; Wharton, Rifkind; Garrison, “ ESG Disclosures:
Frameworks and Standards Developed by Intergovernmental and Non-Governmental Organizations”,
Harvard Law School Forum on Corporate Governance, 21 September, 2020.

• Patrick Butchard, “Principles of international law: Brief Guide”, House of Common Library, U.K. Parliament,
21 September 2020.

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 ESG Regulatory Update Video

ESG Regulatory Update – A Timeline for Investment Managers, Foxon Media Digital, Nels Ylitalo
https://youtu.be/JxMR9UXjgFo?si=IF4AQle2e3JEegcf

Update from the S.E.C. on ESG Disclosure Regulation, Reuters Sustainable Business USA 2022, Gary Gensler
https://youtu.be/kxgG_0OQB3c?si=OlJB7DcCdPkFacwG

Navigating global ESG disclosure rules: guidance for investors in Asia, ICMA Disclosure Rules
https://youtu.be/egq1lZxBktc?si=As9Wo0g1OgBGr610

Source: YouTube, 2024.

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