Sustainable Finance and the Financial Sector: A Conceptual Exploration of ESG’s Role

Anita Abu Hassan, Najah Mokhtar, Mohd Syazrul Hafizi Husin and Fasharudin Hassan
Additional contact information
Anita Abu Hassan: Faculty of Business and Management,
Najah Mokhtar: Faculty of Business and Management,
Mohd Syazrul Hafizi Husin: Colleage of Creative Art Universiti Teknologi MARA, Cawangan Kedah, 08400 Merbok. Kedah, Malaysia
Fasharudin Hassan: RHB Bank Berhad, No.10 & 11, Susuran Sosenati Pusat Perniagaan Sosenati, 1, Jalan Kuala Kedah, 05400 Alor Setar, Kedah Malaysia

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 9, 1240-1257

Abstract: This study addresses the critical issue of how Environmental, Social, and Governance (ESG) factors are integrated within the financial sector, particularly in the context of sustainable finance. As global financial markets increasingly prioritize sustainability, there is a growing need to understand the role that ESG criteria play in shaping financial practices and outcomes. This study aims to explore the conceptual underpinnings of sustainable finance, examining how ESG factors influence financial institutions and contribute to broader sustainability goals. The methodology adopted in this research involves a comprehensive literature review, synthesizing recent empirical studies and theoretical frameworks to provide a holistic understanding of the intersection between sustainable finance and ESG. Key findings suggest that the integration of ESG factors enhances the sustainability and resilience of financial systems, particularly in regions with robust regulatory frameworks, such as Europe and Japan. The study also identifies significant challenges, including the lack of standardized ESG metrics and the risk of greenwashing, which undermine the effectiveness of ESG integration. The implications of this study are both theoretical and practical. Theoretically, it contributes to the literature by applying the Triple Bottom Line (TBL) and Institutional Theory to the context of sustainable finance, highlighting the role of ESG in aligning financial practices with environmental and social objectives. Practically, the study offers insights for financial institutions, policymakers, and investors on the importance of standardized ESG reporting and the need for ongoing regulatory support to ensure meaningful ESG adoption. By addressing these critical issues, the study provides a foundation for future research and policy development aimed at advancing sustainable finance.

Date: 2024
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