ESG Factors and Rating and Green Economy

Moving to a circular economy is increasingly mainstream, even mandatory in many countries. The impacts of climate change and the transition to a green economy are creating emerging risks and opportunities for businesses. ESG serves as a framework helping stakeholders understand how an organization manages risks and opportunities tied to these criteria. ESG can enhance corporate governance by improving transparency and accountability of the board and management to the shareholders and other stakeholders; aligning the long-term interests of the company with the broader societal goals of environmental protection, social justice, and ethical conduct; improving the reputation and brand value of the company; reducing the legal, regulatory, and reputational risks associated with environmental and social issues; and increasing the innovation and competitiveness of the company in a changing market environment. Numerous studies demonstrate a positive relationship between ESG performance and economic and financial performance. This chapter starts by highlighting risks and opportunities for business in the context of transitioning to a green economy. Then, it analyzes how ESG factors can address corporate governance shortcomings. Next, ESG ratings provide insight to investment managers, and thus ensuring the quality of ESG reports necessitates ranking businesses based on their sustainable practices. Finally, a case study on the impact of ESG on enhancing corporate governance in Vietnam is provided for illustration.