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Dual Environmental, Social, and Governance (ESG) Index for Corporate Sustainability Assessment Using Blockchain Technology

Xinlai Liu · Wenbiao Liang · Yelin Fu · George Q. Huang

26 citations0/0 files storedSustainability

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Corporate Social Responsibility Reporting Blockchain Technology Applications and Security Sustainable Finance and Green Bonds

Abstract

Investors are increasingly relying on Environmental, Social, and Governance (ESG) indexes to obtain a third-party assessment of corporate sustainability performance. Various ESG indexes are, therefore, released by prominent rating agencies, including MSCI, Sustainalytics, Refinitiv, etc. However, existing ESG indexes overvalue the usage of massive ESG metrics while ignoring various ESG disclosure levels, leading to critical issues such as limited company coverage, inflexible ESG framework, and obscure assessment processes. This paper proposes a novel Dual ESG Index (DESGI) model using blockchain technology to provide a flexible and transparent corporate sustainability assessment. Firstly, the DESGI model is developed by analogy to the rationale and concepts of the academic credit system due to its advantages of scalability and flexibility. Secondly, blockchain is used to build a transparent environment for ESG assessment. Thirdly, the smart contract and crypto token, as the core blockchain constructs, are used to achieve the dual-dimensional ESG depth and width assessment using ESG GPA and ESG credit, respectively. Finally, a case study is carried out to validate the DESGI by using real-life ESG data and comparing it with four existing ESG indexes. Several managerial implications are also found: (1) DESGI can expand the scope of companies evaluated by ESG criteria regardless of company size or scale; (2) DESGI provides a good potential to fight against greenwashing through the blockchain-based traceability; (3) DESGI can identify the ESG elites who disclose fewer ESG metrics but with excellent ESG performances, which can hardly be achieved using traditional ESG indexes.

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References

2021Why is Corporate Virtue in the Eye of The Beholder? The Case of ESG Ratings 2019The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review 2020Concepts and forms of greenwashing: a systematic review 2019Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance 2021The Impact of ESG Management on Investment Decision: Institutional Investors’ Perceptions of Country-Specific ESG Criteria 2022The ESG Disclosure and the Financial Performance of Norwegian Listed Firms 2022Environmental, social, and governance (ESG) model; impacts and sustainable investment – Global trends and Poland's perspective 2021Determinants of Corporate Environment, Social and Governance (ESG) Reporting among Asian Firms

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