Balancing Corporate Governance Efficiency and Climate Risk Management
The annual conference ‘ESG Corporate Dynamics: The Challenges for Emerging Capital Markets’ 2024 has been held at the School of Finance. The event brought together over 20 scholars from leading universities in China, Egypt, Malaysia, and other countries.
The conference was opened with a welcome address by Sergey Pekarski, Dean of the Faculty of Economic Sciences. He highlighted the crucial importance of the ESG agenda for the modern economy and emphasised the value of international collaboration in this area to achieve optimal outcomes.
Special attention was given to presentations by international speakers, who shared their extensive expertise. Kai Wu, Associate Professor of the Department of Finance and Executive Director of the Private Equity Research Centre at the Central University of Finance and Economics (Beijing), presented a joint study with Zhen Wang on the impact of climate vulnerability on corporate institutional ownership. The study examined quarterly data from nearly 6,000 firms across 36 countries from 2000 to 2021. The authors found that strong corporate governance aligns management interests with those of shareholders, improving the management of climate risks, which is consistent with theoretical expectations. Additionally, high-quality corporate disclosure helps reduce information asymmetry, enabling institutional investors to better assess companies' exposure to climate risks and their mitigation strategies.
The authors also utilised machine learning and artificial intelligence techniques to analyse corporate report texts, which supported their findings. Companies exposed to higher climate risks attract fewer institutional investors, particularly short-term ones. This negative effect is exacerbated in companies with poor governance and low transparency. The authors recommended improving corporate disclosure systems and climate risk management for companies and developing standards for climate risk disclosure for policymakers.
Chang H. Kim, Associate Professor and Deputy Director of Global Affairs at the College of Industry-Entrepreneurs at Xi’an Jiaotong-Liverpool University, presented a report on ESG policy trends in South Korea and China. He noted that while both countries actively invest in sustainable development strategies, their approaches differ significantly. Since 2017, South Korea has implemented corporate governance disclosure systems, and by 2030, all public companies will be required to provide sustainability reports. The country aims to achieve carbon neutrality by 2050.
China, on the other hand, relies on state regulation. Since 2014, mandatory environmental information disclosure has been introduced, but ESG reports remain mostly voluntary. China's primary focus is reaching a ‘carbon peak’ by 2030 and carbon neutrality by 2060. The speaker emphasised that both countries face challenges due to the lack of standardised ESG rating systems. He proposed developing standardised ratings and improving the quality of ESG reports, as many companies fail to provide comprehensive information.
Irina Ivashkovskaya, Head of the School of Finance, contributed to two joint presentations with international colleagues. One, developed with Ion Frecăuțanu, Ender Demir, and Egor Pashkov, focused on ‘green bonds’ during periods of uncertainty. The authors created a synthetic green bond index based on daily price dynamics from 19 countries between 2018 and 2023. The study revealed that green bonds in emerging markets exhibit different trends compared to developed markets. The Emerging Market Green Bond Index (EMGBI) shows significant spillovers from the S&P 500, S&P Global 1200 ESG, and S&P Global Clean Energy indexes but minimal interaction with traditional energy markets. Additionally, the authors calculated optimal portfolio weights and hedging efficiency for these bonds. For instance, coal proved to be a stable asset to include in a portfolio with EMGBI throughout the observation period, whereas Brent oil was effective only during geopolitical crises.
In collaboration with Yanfei Wu, a doctoral student at the School of Finance, Irina Vasilyevna explored the use of artificial intelligence in sustainable development. The authors developed an original multi-level model encompassing internal company operations, supply chains, and broader social effects. The model considers moderating the effects of ‘soft’ factors (investor attention) and ‘hard’ factors (state environmental regulation). Using data from Chinese public companies between 2013 and 2022, the study demonstrated that AI significantly enhances environmental, social, and governance (ESG) performance.
Other HSE faculty and students also presented at the conference. Alexandra Egorova, Senior Lecturer at the School of Finance, discussed the impact of ESG factors on companies' investment attractiveness. ESG scores for companies in BRICS countries rose sharply from 38.9 to 54.7 between 2014 and 2022. Unlike developed economies, where ESG is a corporate standard, BRICS countries use it as a tool to attract investment and manage resource-dependent economies. The analysis, based on data from Refinitiv covering over 2,000 companies, showed that China and India lead in ESG implementation, while Russia and Egypt lag significantly. High ESG ratings in BRICS countries strongly influence market valuation and reduce financial risks.
Research Professor Alexander Karminsky and Associate Professor Alexey Morgunov presented a report on the impact of ESG factors on the likelihood of corporate borrowers defaulting. They emphasised the need for an integrated ESG model to assess default risk. The proposed model includes indicators such as environmental violations, legal disputes, changes in legal address, and net asset dynamics. The analysis showed that the new ESG model significantly outperforms existing ratings by Expert RA, with Somers’ D reaching 54% compared to 11% for Expert RA's ESG ratings.
The conference also featured contributions from HSE’s St Petersburg campus and scholars from other countries, including China, Egypt, Malaysia, South Korea, Romania, and Uzbekistan. All sessions garnered significant public interest, and each presentation was accompanied by valuable comments for further research development.