IMPACT OF GREEN FINANCE ON ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT INFLUENCING PERFORMANCES OF BANKS: EVIDENCE FROM BANGLADESH

Abstract

The growing emphasis on green finance (GF) presents significant attention for banks as they navigate environmental and social risk management (ESRM) while striving for financial performance. Emerging the global phenomenon with respect to environmental issues focuses on highlighting the study of GF with ESRM, which leads to the profitability and non-performing loans of banks. This study investigates the impacts of GF on ESRM and, in turn, impacts the performance-profitability and non-performing loans of banks, providing empirical evidence from Bangladesh. This study employs the numerical data collected from annual reports of the central bank-Bangladesh Bank, from 2015 to 2023. The study has focused on variables such as GF sectors, environmental and social risk management, profitability, and non-performing loans. Regression models (Panel ordinary least square, quarantine regression, fixed effect model, random effect model, and panel generalized method of the moment) are employed to examine the effects of GF on ESRM and the impact of ESRM on performance-profitability and non-performing loans. The result shows that GF significantly influences ESRM because the p-value is 0.00≤p-value≤.0.10, rejecting the null hypothesis. ESRM has a significant impact on the performance of banks as a mediating factor with a p-value of 0.00≤p-value≤ 0.10. The findings of this study suggest that GF practices significantly enhance ESRM, which impacts the performance of banks and provides valuable insights for policymakers, regulators, and banking stakeholders in mitigating environmental and social risks and improving the performance of banks.