Sustainable Finance: Essays on Methods and Impact

Abstract

This dissertation advances the discourse on sustainable finance by critically examining its methods and impact in promoting a low-carbon, climate-resilient, and socially sustainable future. Recognizing that environmental, social, and governance (ESG) factors significantly influence both society and the economy, the research underscores the crucial role of integrating these factors into financial decision-making to improve sustainability efforts and financial system resilience. The cumulative dissertation consists of four papers. They cover the areas: (1) applying machine learning to bridge company-level sustainability data gaps, thus improving the accuracy of corporate sustainability assessments; (2) evaluating the role of responsible institutional investors in driving real-world decarbonization, revealing limitations in their current impact; (3) exploring sustainable small business lending by analyzing how banks incorporate sustainability into lending practices for small and medium-sized enterprises (SMEs); and (4) assessing the coherence between ESG ratings and the EU Taxonomy, identifying slight alignment but significant potential for increased transparency and reduced rating divergence. The findings suggest that while sustainable finance holds significant promise, its mechanisms have yet to fully realize their potential in promoting sustainability and resilience, highlighting the need for more research to enhance its effectiveness.