Welcome to our presentation!

As far as we have been concerned, in the context of globalization, economies face financial
uncertainty driven by unpredictable factors, particularly climate change, which stems largely from
greenhouse gas (GHG) emissions. Various international agreements have been established to prompt
countries to address climate change. At COP26, countries emphasized the need for greater focus on
key targets, including reducing GHG emissions.

COP26 focuses on raising financial resources for climate actions, with financial flexibility being vital for
countries to allocate funds for climate adaptation and mitigation.

So what is financial flexibility?

- Financial flexibility refers to a firm’s untapped borrowing power, enabling it to avoid or reduce
the impact of financial distress and liquidity shocks on investments. It allows firms to secure the
necessary funds for investment opportunities and stabilize their operations.
- By being able to restructure financing at a reasonable cost, companies can manage cash flow
changes more effectively, which enhances their overall value.

So what is ESG?

- ESG (Environmental, Social, and Governance) is a framework for evaluating a company's

impact on the environment, society, and its governance practices.
- ESG scores assess a firm's long-term sustainability and growth potential as high ESG
performance helps companies achieve sustainable goals, attract investors, and improve
relationships with creditors.

Why did our team pay attention to this topic?

- In previous research, ESG performance and financial flexibility have indicated that firms with
strong ESG practices are more financially resilient.
- However, there is limited research on the specific impact of GHG emissions on financial
flexibility or the interaction between CO2 emissions and ESG performance, especially in East
Asia.

=> Our team sought to identify the relationship between ESG performance, carbon emissions,
and financial flexibility in China, Japan, South Korea, and Hong Kong using regression
techniques, and provide recommendations for emissions reduction and ESG improvement to
enhance financial flexibility across different sectors.

In our research, our team embarks on specific objectives are as follows:

i. Provide empirical evidence on the effect of environmental, social and governance activities on
financial flexibility in 6 East Asian countries.
ii. Show empirical evidence on the effect of a firm's emission level on financial flexibility in East Asian
countries.
iii. By providing empirical evidence, policymakers, corporations and investors can refer to the
combination of ESG, firm’s emissions level and financial flexibility.
These are some theories our team touched on while conducting this research:

- Stakeholder theory: Explains how organizations address the interests of those affected by
their actions, including direct stakeholders, intermediaries, and external regulators. It highlights
the importance of building value and maintaining good relationships with stakeholders.
- Capital structure theory:
This study explores various capital structure theories to better understand the link between
financial flexibility and capital structure.
+ The Pecking Order Theory prioritizes internal over external funding
+ Trade-off Theory balances debt and equity by weighing tax benefits against bankruptcy
risks.
+ Liquidity Preference Theory suggests using excess capital for operations and
investments.
+ Market Timing Theory advises issuing shares in strong markets and using less risky
debt when markets are weak.
- Agency theory:
Explores how to best manage the relationship between a principal and an agent when they
have differing goals and risk preferences. It focuses on efficient information management and
minimizing risk-bearing costs to align their interests.
- Sustainable development theory:
Sustainable development theory states that businesses have obligations to the environment
and consumers along with profit and legal duties.
=> Stakeholder and sustainable development theories show how ESG and emissions influence
stakeholders, governments, and agencies to invest in boosting financial flexibility. Capital structure
theory reveals how financial flexibility impacts a firm's capital structure and optimizes corporate value.
These theories form the framework for our research.

Phương Anh - Script methodology

According to MM capital structure, financial flexibility refers to a firm’s ability to access fund
efficiently and restructure the capital.
Some studies highlights its importance in reducing investment sensitivity and be able to hold
cash during financial crisis such as depression, pandemic and geopolitical risk or even
climate risk. Another research shows firms with strong ESG scores will attract investors,
enhance their ability to raise funds, and approach new chances of expanding their scale.

Research gap:
We addressed 2 rs gap in our research. First, East Asia is one of the largest carbon emmiting
region globally, but there is a lack of comparative analysis across this region. However, we
found several papers research the impact between FF and green index in Europe or an
individual country like China, Australia. So, we decided to analyze this effect among countries
in East Asia, which is highly related to Vietnam. Second, there has limited research on how
satisfying stakeholder needs, particularly carbon emissions and ESG disclosure, improves
firm performance, despite evidence that neglecting stakeholders harms financial conditions.
=> Therefore, with 2 rs gap, we decide to use data in East Asisa from 2019 - 2023 to explore
this gap.

Hypothesis:
4 hypotheses need to be analyzed in this rs:
- H1: There is a significant effect between ESG performance and financial flexibility.
- H2: The relationship between environmental performance and financial flexibility.
- H3: Carbon emission has a negative impact on financial flexibility.
- H4: There is a moderating effect of emission on ESG performance and financial
flexibility.

Econometric methods:

1. SLIDE DESCRIPTIVE STATISTIC: (skip)

- As being shown on the screen, we run on the model with 4114 observations.The mean value of
FL is around 0.89 and ESG mean score is approximately 52.6 point. From this, it can be
inferred that, most companies in our research sample have average ESG performance.
2. SLIDE MAIN RESULTS:
3. Main results:
- After running FGLS, it occurs that ESG has a positive impact on Financial flexibility, with 1% of
significance level. This has confirmed that H1 is accepted.
- We also found that there is a significant negative relationship among Emission level and
Financial flexibility. This, consequentially, confirms H2.
- This finding supports the previous studies such as Zhang & Liu in 2022; Naseer et al in 2024.
4. Result No.1 discussion:
- To make an explanation, first, it can be inferred that ESG performance will enhance investors
and creditors level of trust in a firm, which supports the stakeholder theory.
- Therefore, as firms concentrate on such actions increasing their ESG performance,
they will lower their agency cost as the occurrence of conflicts among shareholders and
 the management board. This is mentioned in H.Zhang’s study in 2020. Additionally,
Jung and the partners in 2018 also showed that firm with environmentally-friendly
operations will create reputation among public.
- Zhang also pointed out that shareholders will have deep distrust in firms when they
bypass the green commitments by emitting more greenhouse gases.
- This result gives us a notion that “being green is worth it” as gaining more trust of investors and
debtors will simultaneously enhance the firm’s ability to access to the sources of funds. As
more funds viable, the capability to reach and restructure their financing at low cost is
consequentially increased.
- Therefore, business activities should be consider through an appropriate ESG-oriented
strategy and try to limit the amount of CO2 that they emit. Additionally, the social and
governance should also be taken care of when plans are written.
5. Interaction results and interaction discussion:
- The second point we want to bring on the conference. With 1% level of significance, our
interaction term shows a negative correlation coefficient. By this coefficient, it can be observed
that every 1 unit of increase in Emission level will reduce the bright impact of ESG on the
financial flexibility level.
- There are 2 mechanisms that we have found base on this result.
- The first mechanism imply that the awareness of managers will mitigate the
carbon risk, which is the second mechanism, which can lead firm to several
other types of aftermaths such as increasing cost of debt; legal defame and
lower competitive advantage.
- Therefore, we once again want to encourage firm to join their hands in the
worldwide “green” career. Such actions will not only bring firms benefit and
reputation, but it also help maintaining the global climate condition and pollution
problems.
6. Interaction results discussions: (Script trên phần 5)
7. Alternative Measurement results:
- flexible

Slide 20

Moving to the last part.

In conclusion,

Our study confirmed that a firm's ESG performance has a positive impact on its financial flexibility.

It implies that companies that do well in ESG activities tend to have better access to capital, lower cost
of debt, and enhanced investor confidence.

On the other hand, carbon emissions have reverse effects, which means the more CO2 a company
releases, the less financial flexibility the firm has.
We also found a connection between ESG performance and emission level. We found that companies
having high ESG scores usually have less pollution, implying their commitment to being
environmentally friendly.

All of these findings match our initial expectations and are robust across several tests.

Slide 21

Based on the results, we have developed some suggestions for companies about ESG performance.

The first is that companies should consider long-term plans such as waste and CO2 reduction

Secondly, to offset the negative impacts of the main activities, firms should participate in practical
actions to protect the environment.

The third is to enhance resource management by taking into account the two widely accepted
sustainability measures: flow-based and stock-based assessments. This dual approach ensures
comprehensive resource management.

Finally, we emphasize interconnectivity to diversify scales.

Slide 22

We have some other suggestions for carbon emissions.

Firstly, managers need to prepare sufficient resources for the transition to green finance. This includes
investing in sustainable practices and technologies that support a circular economy model.

Collaboration is also the key in this journey. Enterprises should collaborate with others to fulfill their
purpose for the green revolution.

Last but not least, understanding consumer behavior is also important. Firms must conduct surveys to
gain crucial insight into their consumer behavior in order to increase product sales as well as decrease
the carbon footprint included in their products.

This is the end of our presentation. If you have any questions, please feel free to ask us. Thank you for
your time and attention.