Impacting ESG on the Performance of Commercial Banks: A Case Study in Vietnam

Abstract

Background: In the business activities of enterprises, banks actively contribute to the formation, development, and promotion of sustainable strategies related to environmental and social issues within the enterprise and are a significant factor for enterprises when deciding to transform their business models towards sustainable development. Objective: This study aims to assess the impact of environmental, social, and governance (ESG) factors on the performance of commercial banks in Vietnam. The performance indicators are return on assets (ROA), return on equity (ROE), and net interest margin (NIM). Methodology: The study employs the panel data quantification method, including the pooled regression models based on the generalized least squares method. Total ESG data based on the primary and secondary data systems collected from 27 banks in the period from 2015 to 2023. Result: Statistical evidence indicates that the dependent variables are significantly influenced by the criteria of Environment, Society, and Governance, as well as affected by factors such as loan-to-deposit ratio, bad debt ratio, liquidity ratio, price-to-book ratio, and economic growth. Conclusion: The study also considered internal bank factors, as well as the macroeconomic environment, to provide a more detailed evaluation. The loan-to-deposit ratio has a positive significance on ROA, ROE, and NIM, indicating that the ability to utilize capital and economic growth can help increase bank efficiency. Unique Contribution: This study considers control variables related to internal factors and the economic environment, and the independent variables are environment, social, and governance. Key Recommendation: The authors have made policy recommendations for the banking system that priority should be given to integrating green strategies, improving credit quality, high security, and transparency; at the same time, there should be reasonable policies to ensure capital safety for development in a market that is increasingly concerned about climate change and sustainable development.