The contribution of ESG to the financial performance of banks: Multinational study

Abstract

he subprime mortgage crisis and the COVID-19 crisis have severely damaged banks’ image and the climate of trust they enjoy with their customers. As a result of this deterioration, social responsibility is increasingly being developed within banking establishments to overcome the undesirable effects of these crises. This study aims to evaluate the contribution of environmental, social, and governance (ESG) to the financial performance of banks. The final sample is made up of 52 banks from different countries, and our study covers the period from 2007 to 2020. The results show that the overall ESG score, environmental, social, and governance scores separately, and the bank size are positively correlated with banks’ financial performance measured by return on assets (ROA) and return on equity (ROE). On the other hand, debt is negatively correlated with the latter variables. Also, for more robustness, we assessed the effect of each ESG criterion on banks’ financial performance. The contribution of this work can be seen in the fact that it is the first multinational analysis including 52 banks to assess the relationship between ESG and financial performance during the period of the subprime and COVID-19 crises.