Integrating ESG risk assessments into financial decision-making: insights from industry experts on enhancing risk management, sustainable investing, and investment strategies in financial markets

Abstract

Environmental, Social, and Governance (ESG) factors have increasingly shaped global financial strategies and investment decisions, yet their integration into financial risk assessments remains inconsistent due to challenges like data inconsistency, lack of standardization, and fragmented reporting. This study, set within the context of Malta’s financial sector, investigates how ESG risk assessments are integrated into financial decision-making in response to European Union directives. By using a qualitative research approach, the study gathers insights through semi-structured interviews with industry experts and a supplementary survey to provide broader stakeholder perspectives. Thematic analysis identifies four key themes: compliance vs. strategic alignment, regulatory impacts on ESG adoption, challenges in ESG implementation, and the influence of stakeholders on future ESG practices. The findings revealed that while regulatory frameworks such as the CSRD and SFDR drive ESG adoption, they also introduce complexity and a compliance-driven approach, which often delays strategic integration. Data fragmentation and the lack of standardized frameworks further complicate effective ESG integration, especially for smaller institutions. Stakeholder pressure, particularly from clients and investors, is emerging as a key force driving ESG strategies, signaling a shift from compliance to market-driven approaches. The study makes contributions to the literature on the role of ESG risk assessments in enhancing decision-making and offers a conceptual framework to improve integration of ESG in smaller and highly regulated financial markets like Malta.