Financial risk modeling taking into account the impact of stock market incidents related to greenwashing

Abstract

Due to the relevance of the sustainable development agenda in Russia, companies, in order to demonstrate their commitment to the principles of sustainable development, resort to evaluating their activities in the form of an ESG rating. The assessment is based on subjective data using large assumptions, errors in which are difficult and sometimes impossible to identify. Due to these circumstances, there are high risks of using greenwashing practices to improve the reputation of companies in order to subsequently obtain material benefits. Taking into account the established practice of the negative impact of greenwashing on the activities of companies abroad, the question of the likelihood of the spread of greenwashing practices in Russia and the possibility of assessing the negative impact in the form of financial risks of companies becomes relevant. A simulation model of financial risk in the implementation of the negative impact of the use of greenwashing practices is proposed and the probable range of impact on the capitalization of companies is estimated. The model was formed using data from foreign and Russian analytical agencies, the modeling was based on a simulation model of the dependence of risk on the result of the shock and an initial assessment of the sustainable development of the ESG rating company. It is concluded that there is a high correlation between the negative consequences of the use of greenwashing practices and the quality of the ESG rating. Greenwashing is a catalyst for financial risk and can directly affect the capitalization of companies, the level of depreciation of the market value of which will depend on the strength of the "shock" reaction in the securities market.