Volume 3 , Issue 1 , PP: 30-37, 2023 | Cite this article as | XML | Html | PDF | Full Length Article
Noura Metawa 1 * , Saad Metawa 2
Doi: https://doi.org/10.54216/FinTech-I.030103
In response to the evolving dynamics of corporate responsibility, this research explores the integration of Environmental, Social, and Governance (ESG) factors in sustainable business modeling. The study addresses the pressing need for a strategic framework by delving into the complex interplay between ESG considerations and risk score analysis. Leveraging a comprehensive dataset from S&P500 ESG Scores, our methodology employs the CATBoost algorithm, a categorical boosting technique, for predictive modeling. CATBoost's unique ability to handle categorical variables seamlessly is particularly advantageous for datasets with diverse data types, commonly encountered in ESG analysis. Additionally, we apply SHAP (Shapley additive explanations) methods to shed light on the influential factors shaping our model's predictions, enhancing interpretability. The results, presented through sector-wise ESG analyses, pairwise scatter plots, and distribution analyses, offer a granular understanding of ESG performance across various industries. Furthermore, the SHAP explanation methods provide insights into the relative impact of individual ESG factors on predictive outcomes. The findings not only contribute to the empirical understanding of sustainable business practices within the S&P500 but also offer practical insights for businesses seeking to enhance their ESG integration strategies.
Business sustainability , Environmental , social, and governance (ESG) , Risk score analysis , business modeling , corporate resilience , Decision-making , Sustainable development , Triple bottom line.
[1] Ielasi, Federica, Paolo Ceccherini, and Pietro Zito. 2020. “Integrating ESG Analysis into Smart Beta Strategies.” Sustainability 12 (22): 9351.
[2] Folqué, Maria, Elena Escrig-Olmedo, and Teresa Corzo Santamaria. 2021. “Sustainable Development and Financial System: Integrating ESG Risks through Sustainable Investment Strategies in a Climate Change Context.” Sustainable Development 29 (5): 876–90.
[3] Muthuswamy, M. and M. Ali, A. (2023) “Sustainable Supply Chain Management in the Age of Machine Intelligence: Addressing Challenges, Capitalizing on Opportunities, and Shaping the Future Landscape”, Sustainable Machine Intelligence Journal, 3. doi: 10.61185/SMIJ.2023.33103.
[4] Kuzmina, Jekaterina, Dimitrios Maditinos, Diego Norena-Chavez, Simon Grima, and Marta Kadłubek. 2023. “ESG Integration as a Risk Management Tool within the Financial Decision-Making Process.” In Digital Transformation, Strategic Resilience, Cyber Security and Risk Management, 105–13. Emerald Publishing Limited.
[5] Landi, Giovanni Catello, Francesca Iandolo, Antonio Renzi, and Andrea Rey. 2022. “Embedding Sustainability in Risk Management: The Impact of Environmental, Social, and Governance Ratings on Corporate Financial Risk.” Corporate Social Responsibility and Environmental Management 29 (4): 1096–1107.
[6] Hoang, Thinh. 2018. “The Role of the Integrated Reporting in Raising Awareness of Environmental, Social and Corporate Governance (ESG) Performance.” In Stakeholders, Governance and Responsibility, 47–69. Emerald Publishing Limited.
[7] Sciarelli, Mauro, Silvia Cosimato, Giovanni Landi, and Francesca Iandolo. 2021. “Socially Responsible Investment Strategies for the Transition towards Sustainable Development: The Importance of Integrating and Communicating ESG.” The TQM Journal 33 (7): 39–56.
[8] Rezaee, Zabihollah. 2017. “Corporate Sustainability: Theoretical and Integrated Strategic Imperative and Pragmatic Approach.” The Journal of Business Inquiry 16.
[9] Cappucci, Michael. 2018. “The ESG Integration Paradox.” Journal of Applied Corporate Finance 30 (2): 22–28.
[10] Karwowski, Mariusz, and Monika Raulinajtys-Grzybek. 2021. “The Application of Corporate Social Responsibility (CSR) Actions for Mitigation of Environmental, Social, Corporate Governance (ESG) and Reputational Risk in Integrated Reports.” Corporate Social Responsibility and Environmental Management 28 (4): 1270–84.
[11] Rajesh, R, and Chandrasekharan Rajendran. 2020. “Relating Environmental, Social, and Governance Scores and Sustainability Performances of Firms: An Empirical Analysis.” Business Strategy and the Environment 29 (3): 1247–67.
[12] Habib, Ahmed Mohamed. 2023. “Do Business Strategies and Environmental, Social, and Governance (ESG) Performance Mitigate the Likelihood of Financial Distress? A Multiple Mediation Model.” Heliyon 9 (7).
[13] Zioło, Magdalena, Iwona B\kak, Katarzyna Cheba, Beata Zofia Filipiak, and Anna Spoz. 2023. “Environmental, Social, Governance Risk versus Cooperation Models between Financial Institutions and Businesses. Sectoral Approach and ESG Risk Analysis.” Frontiers in Environmental Science 10: 2459.
[14] Hübel, Benjamin, and Hendrik Scholz. 2020. “Integrating Sustainability Risks in Asset Management: The Role of ESG Exposures and ESG Ratings.” Journal of Asset Management 21 (1): 52–69.
[15] Mohamed, M. (2023) “Agricultural Sustainability in the Age of Deep Learning: Current Trends, Challenges, and Future Trajectories”, Sustainable Machine Intelligence Journal, 4, p. (2):1−20. doi: 10.61185/SMIJ.2023.44102.
[16] Rezaee, Zabihollah. 2016. “Business Sustainability Research: A Theoretical and Integrated Perspective.” Journal of Accounting Literature 36 (1): 48–64.
[17] Chong, Tricia, and Lawrence Loh. 2023. “Innovating ESG Integration as Sustainable Strategy: ESG Transparency and Firm Valuation in the Palm Oil Sector.” Sustainability 15 (22): 15943.
