Smart ESG Framework for Corporate Responsibility Mechanism in Decentralized Finance

Abstract

ABSTRACT This study innovatively constructs a global regulatory framework of smart contract technology and environmental, social, and governance (ESG) investment standard in the decentralized finance (DeFi) market based on the analysis of capital inflow/outflow rate, technological innovation index, and financial market openness on DeFi market volatility, liquidity risk, and market stability. The paper establishes a “smart ESG” framework to guide market compliance and sustainable development. The framework stresses the significance of corporate social responsibility (CSR) practice and environmental management in the guidance of financial decision‐making in the DeFi space to promote sustainable development and achieve the win‐win situation of financial activities to society and the environment. Furthermore, based on the BART model (Blockchain Automated Regulatory Tool), the dynamic predictive regulatory (DPR) framework and incentive dynamic governance index (IDGI) model, this study constructs a multi‐level regulatory system to cope with the complex and dynamic DeFi market. The empirical analysis is based on the top 10 economies in the world, and the feasibility of the framework in different market conditions is verified. This study not only enriches the theoretical framework of combining DeFi and ESG but also provides policymakers with feasible regulatory strategies for incorporating CSR and environmental management into the regulatory system to promote the stability and sustainable development of global financial markets.