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2023 | Book

Contemporary Issues in Sustainable Finance

Exploring Performance, Impact Measurement and Financial Inclusion


About this book

The notion of sustainable development is applied to financial activities through sustainable finance. As a result, sustainable finance attempts to produce long-term value by allocating capital to projects that, in addition to providing economic benefits, are furthermore beneficial to society and do not burden the environment.

This book sheds light on contemporary challenges in sustainable finance, addressing two key perspectives: measurement and performance, and products and business models. In particular, the volume examines theoretically and empirically the relations between business models and non-financial impact, both environmental and social; as for the social goals, a special focus of the book is dedicated to the gender gap.

Table of Contents

Chapter 1. Introduction
The economy, and the financial system, are at risk due to the increasingly frequent and extensive harm caused by climate and social changes. Environmental, social, and governance (ESG) concerns, which include threats to biodiversity, social conditions, and business management standards, impact the economy’s present and potential growth (Bank of Italy in Report on sustainable investments and climate-related risks, year 2021. Bank of Italy, 2022). Environmental and sustainability characteristics are among the most relevant risk categories, in terms of both the frequency and severity of potential repercussions (World Economic Forum in The Global Risks Report 2022. WEF, 2022). Investor attention to ESG concerns has grown globally.
Mario La Torre, Sabrina Leo
11. Correction to: Collaboration or Community? The Impact of the Institutional Forces in Promoting Social Crowdfunding
Antonio Minguzzi, Michele Modina, Stefano Filomeni, Marilena Bredice


Chapter 2. How to Scale Impact Measurement? Evaluating the Application of the Synthetic Control Method in Impact Measurement
The spread of impact investments from a niche field into the mainstream financial market raises new demands on impact measurement. Instead of evaluating single interventions, impact investors increasingly aim at rating large portfolios of enterprises based on comprehensive impact considerations. Thus, it is necessary to scale impact measurement and enable a large-scale quantitative and data-based impact assessment. Therefore, this paper transfers the synthetic control method, developed by Abadie & Gardeazabal (2003), into the field of impact investing, by evaluating the prerequisites for its implementation as well as discussing possible applications to a large universe of companies and a broad range of asset classes. This approach might represent a first step in developing a measurement framework for a large impact investing market, applicable in research as well as in practice.
Sina Sauer, Rahel Becker, Volker Then
Chapter 3. Impact Investments Measurement: Bridging Research and Practice
Intentionality and measurable impact are the key characteristics that allow the differentiation of impact investing from conventional forms of investment. Over the past decade, impact measurement has become a common method for evaluating the financial and social return generated by impact investments, and it is relevant for all impact stakeholders, such as impact investors and intermediaries, investees and social enterprises, public administrations and governments. This study was performed to provide an empirical analysis of some practices useful for improving the consistency, effectiveness and applicability of impact measurement. Using a qualitative approach based on a case study analysis, the paper investigates two measurement tools: Social Return on Investment (SROI) and balanced scorecard (BSC). The analysis performed uses various perspectives and concepts, and based on the evidence found, it opens interesting future research directions into the impact measurement field. The findings of this study add to the existing body of knowledge with “insights” for bridging the gap between theory and practice.
Eugenia Strano, Alessandro Rizzello, Annarita Trotta
Chapter 4. ESG Ratings, Scores, and Opinions: The State of the Art in Literature
The heterogeneity of ESG rating outcomes, due to different methodologies adopted by ESG rating providers and an unclear distinction between ratings, scores, and opinions, leads to multidimensionality of information. This study aims to analyse the state of the art of the scientific literature on ESG ratings, scores, and opinions. The analysis was conducted using both bibliometric and systematic reviews of the literature, using data visualisation techniques. Our main research question is: what are the main trends analysed in the literature on ESG ratings, scores, and opinions? Our initial hypothesis is that the existing literature tends to focus on specific issues and leaves other areas of inquiry uncovered, e.g., by not drawing appropriate distinctions in terms of methodologies, definitions, and relationships to ESG risks, while also placing less focus on the specific implications of the ESG topic for banks and financial intermediaries. Our results indicate, first, a lack of clear demarcation between the different methodologies and definitions used to assign ESG ratings and scores; implications relate to disclosure profiles and investors’ use of information. Secondly, our analysis shows that—although ESG issues play an essential and growing role in the financial sector—there are still rather few studies that explicitly focus on the effects of ESG profiles from a purely banking and finance perspective.
Mario La Torre, Mavie Cardi, Sabrina Leo, Jacopo Schettini Gherardini


Chapter 5. Corporate Financial Performance and ESG Performance: Which One Leads European Banks?
This chapter goes beyond the relationship between a bank ESG performance (ESGP) and traditional financial measures, known in the literature as Corporate Financial Performance (CFP). Here, the link between ESG factors and financial benchmarks is analysed to verify whether banks may find sufficient stimuli (higher CFP) in the market reaction to adopt ESG conduct spontaneously. Starting from the results achieved in our previous pilot study (Torre et al., Corporate Social Responsibility and Environmental Management 28:1620–1634, 2021) on a limited number of European listed banks, we decided to deepen the relationship between ESGP and CFP to all available listed European banks between 2008 and 2020. Using panel estimation methods, we are going to further explore the relationship between ESGP and CFP, considering different dimensions of financial performance at once, both accounted-based (ROA and ROE) and market-based (Capitalisation to Book Value, Tobin's Q). Furthermore, we employ VBM, namely EVA Spread, less explored in literature. Unlike our previous pilot study, we use the single Pillar Scores (Environmental, Social and Governance) as ESGP instead of the ESG Score.
Mario La Torre, Sabrina Leo, Ida Claudia Panetta
Chapter 6. Is Performance the Key Issue in SRI Funds? Conclusion and Lessons Learned from Three Decades of Studies
This paper conducts a systematic literature review of primary studies that analyze the relative performance of SRI Equity investment funds vs their conventional counterparts. The existing literature is analyzed and categorized into two samples depending on the benchmark used. Based on our research of the period between 1992 to July 2021 we arrive at a total sample of 54 papers. We can conclude that the vast majority (67%) of the empirical studies show no difference or a not statistically significant difference in the relative financial performance of SRI funds. We analyze trends in the literature and suggested “best practices” (sample size, period of the analysis, and use of multifactor measures). For the studies that use conventional funds as a benchmark, we analyze the use of the matched pair and the number of matching criteria. For studies that use an index as a benchmark, we observe differences between studies that use conventional indices, SRI indices, or both. The results suggest that performance may not be the key issue. We conclude with a debate on critical issues: the need for clearer definitions, disclosures, and standards, the relevance of the screening process of SRI funds, and the specific characteristics of SRI funds.
Susana Martínez Meyers, Maria Jesús Muñoz Torres, Idoya Ferrero Ferrero
Chapter 7. The Financial Side of the Social Impact Bond: The Determinants of the Returns
Using a financial lens, we study which factors affect the financial return of a Social Impact Bond (SIB). The hypothesis underlying our empirical strategy is that the SIBs’ diffusion also depends on their attractiveness for the investors that, in turn, typically depends on the (financial) return. However, SIBs are very special schemes that permit to achieve social outcomes using the structured finance. Therefore, it is plausible to imagine that their financial return is blended with a social return. It becomes interesting to investigate the determinants of the financial return to shed light on the interest and the role of the (traditional) finance in these (social finance) schemes. We develop an empirical analysis considering an extensive sample of 181 SIBs since 2010 and using an original dataset. The results are mixed. Overall, findings suggest that these schemes function according to logics different from those driving the other financial schemes/instruments.
Rachele Hyerace, Maria Mazzuca, Sabrina Ruberto
Chapter 8. Catastrophe Bonds: A Mitigation Opportunity in Turmoil Period
The work aims at examining the beneficial effect of minimal, if any, correlation of an alternative asset class, as Catastrophe bonds with traditional assets, specifically bonds, equity, real estate and commodity. Adopting a multi-level approach based on linear correlation and regression, diversification effect of Catastrophe bonds has been tested through spanning tests and portfolio optimizations resulting in the classification of the instruments as market-uncorrelated diversifier. Assuming the robustness of the results during the pandemic crisis, as a possible breakthrough in the market, the work shows the higher resilience of the Catastrophe bonds justifying its inclusion in diversifying portfolios during the turmoil period.
Massimo Mariani, Alessandra Caragnano, Francesco D’Ercole, Raffaele Didonato, Domenico Frascati

Financial Inclusion

Chapter 9. Collaboration or Community? The Impact of the Institutional Forces in Promoting Social Crowdfunding
Our paper explores whether social crowdfunding triggers the success of social projects by focusing on the role of the Italian platform Meridonare. By examining 140 projects between 2016 and 2018, our study analyzes how the platform acts in facilitating the interaction between non-profit organizations and private investors willing to participate in the financing of social projects. Our results support the relevant role a social crowdfunding platform has on the success of a campaign. The involvement of the population through actions that leverage the human-touch relationship, and the social nature of the project increases the propensity to achieve the funding objectives.
Antonio Minguzzi, Michele Modina, Stefano Filomeni, Marilena Bredice
Chapter 10. Financial Inclusion and the Gender Gap Across Islamic and Non-Islamic Countries
Using the World Bank’s Global Findex database, we provide an exploratory analysis of the patterns of financial inclusion and the gender gap among 56 Islamic and 101 non-Islamic countries during the period 2011 to 2017. We show that financial inclusion is still relatively low in our sample, but it is particularly challenging in the sampled Islamic countries and for women. Our study suggests that the strength of the economy, social and institutional environment, as well as banking market conditions and technology are among the potential determinants of financial exclusion in Islamic countries compared to their non-Islamic counterparts.
Latifah Baeshen, Claudia Girardone, Anna Sarkisyan
Contemporary Issues in Sustainable Finance
Mario La Torre
Sabrina Leo
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