Determinants of ESG sustainability in financial systems: a fuzzy cognitive approach with a focus on Georgia

Abstract

Sustainable finance has gained momentum over the last several years amid increasing environmental and social challenges. This research seeks to characterise Environmental, Social, and Governance (ESG) sustainability within the financial sector as a novel concept, identifying its core determinants, evaluating and modelling relationships among them, and subsequently analysing various scenarios for enhancing ESG Sustainability. To this end, a fuzzy cognitive map construction and modelling method was employed. Through a multi-stage process, a fuzzy cognitive map of ESG Sustainability was developed using Georgia's financial sector as a case study. The main findings identified ten fundamental factors influencing ESG Sustainability within the financial sector and evaluated the causal relationships among them. According to experts' assessments, the Local Sustainable Finance Regulatory Framework and the Involvement of International Financial Institutions are particularly important among these key fundamental factors. Additionally, the scenario analysis revealed that targeted improvements in the key factors could significantly enhance ESG Sustainability.