Examining the relationship between ESG scores and financial performance in banks: Evidence from G-8 countries

Abstract

Purpose-It is aimed to examine the relationship between the ESG scores and financial performances of all banks operating in the stock markets of G-8 countries (Italy, France, Japan, Canada, Russia, the United Kingdom and the United States).Methodology-Return on assets and return on equity were used as financial performance criteria, and the Environmental, Social and Governance scores of the banks were defined as separate independent variables as sub-breakdowns.In addition, debt/equity ratio is another independent variable included in the study.The data used for the study were obtained from the Thompson Reuters database, the data were used on an annual basis and the data were analyzed with the panel data analysis method.Findings-Results of the analysis, according to both return on assets (ROA) and return on equity (ROE) models, Environmental score has a negative and significant relationship, while Social score has a positive and significant relationship.Governance score has a negative and significant relationship on both sides.It was concluded that it was not statistically significant for both models.Conclusion-In future studies, the performance of banks can also be examined on a country-specific basis and various different results can be obtained.In addition, examining real sector companies in future studies may help to obtain more striking results in terms of Environmental score, because the financial sector, and in particular the banking sector, has less environmental impact than other sectors.For example, it can be thought that the environmental scores of the airport's businesses or mining companies have more striking effects on profitability.Finally, the effects of year-specific ESG scores on bank performances can provide more explanatory results when considered lagged by establishing a dynamic model.

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