Sustainability, Business Risk and ESG Rating

Table of Contents

1. Frontmatter

2. Chapter 1. Sustainability and the Regulatory Framework

   Matilda Shini

   Abstract

   This chapter explores the evolution of sustainability as a key driver of corporate value and its integration into strategy and regulatory frameworks. It traces the historical development from the Club of Rome’s Limits to Growth and the Brundtland Report to international agreements such as the Rio Conference, the Millennium Development Goals, the 2030 Agenda, and the Paris Agreement. The ESG paradigm—environmental, social, and governance—is presented as the main framework linking sustainability performance to competitiveness, investor confidence, and long-term value creation. The chapter also examines the European regulatory evolution, from voluntary Corporate Social Responsibility practices to binding obligations under SFDR, EU Taxonomy, CSRD, ESRS, and CSDDD, emphasizing transparency, accountability, and capital allocation. Finally, the 2025 Omnibus package is discussed, showing how sustainability has transitioned from a voluntary principle to a strategic and regulatory imperative shaping corporate governance, finance, and resilience.

3. Chapter 2. Risk Analysis and Management Towards an ESG Perspective

   Matilda Shini

   Abstract

   This chapter explores the evolution of Risk Management (RM) as a strategic competence for corporate value creation and resilience. The foundations of risk are introduced through established categories and leading frameworks such as ISO 31000 and COSO ERM, which define RM as a structured and iterative process embedded in governance and decision-making. Special focus is placed on ESG risks, whose systemic, long-term, and interconnected nature distinguishes them from traditional risks and makes their integration into Enterprise Risk Management increasingly necessary. Climate change, biodiversity loss, human rights, and governance failures are highlighted as emerging challenges that directly influence corporate competitiveness, investor expectations, and regulatory priorities. The chapter shows how RM has shifted from a compliance-oriented function to a strategic lever, positioning sustainability at the core of risk culture and ensuring long-term resilience, innovation, and corporate reputation.

4. Chapter 3. Rating ESG

   Matilda Shini

   Abstract

   This chapter explores ESG score as essential tools for assessing corporate sustainability performance and guiding investment decisions. It examines the rise of ESG rating agencies, which translate environmental, social, and governance performance into measurable indicators for investors. While ESG score reduces information asymmetry and integrates sustainability risks into financial decision-making, their methodologies are heterogeneous and sometimes opaque, producing divergent assessments and market uncertainty. The chapter highlights regulatory responses, particularly Regulation (EU) 2024/3005, which establishes a harmonized framework requiring methodological transparency, independence, and oversight by ESMA to enhance credibility and investor confidence. Finally, the chapter examines the impact of ESG score on corporate performance, showing that higher ratings can lower cost of capital, reduce exposure to systematic risk, improve valuations, and enhance resilience, while acknowledging ongoing methodological limitations and the potential for misaligned or opportunistic practices.

5. Chapter 4. ESG Ratings’ Correlation with Systematic Risk: Empirical Evidence

   Matilda Shini

   Abstract

   This chapter investigates the relationship between ESG ratings and systematic risk, focusing on the impact of global sustainability milestones such as the UN 2030 Agenda and the Paris Agreement in 2015. Using CAPM and the Fama–French five-factor model, STOXX Europe firms are analysed through ESG-sorted portfolios. The findings show a significant negative relationship between ESG scores and systematic risk after 2015, particularly for higher ESG firms, while lower ESG firms may experience increased risk due to regulatory scrutiny and reputational exposure. The results are robust across models but highlight persistent limitations of ESG ratings, including methodological heterogeneity, inter-rater divergence, and susceptibility to greenwashing. The chapter emphasizes the strategic importance of substantive ESG practices, the need for harmonized reporting and rating standards, and the integration of ESG into governance to enhance resilience, reduce cost of capital, and support long-term value creation.