Bank credit loss and ESG performance

Elena Bruno · Giuseppina Iacoviello · Caterina Giannetti

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Corporate Social Responsibility Reporting Banking stability, regulation, efficiency Sustainable Finance and Green Bonds

Abstract

We study the impact of ESGC scores on Non-performing loans (NPLs) for a sample of European listed banks over the period 2002-2020. Relying on two different types of instrumental variables and fractional logit estimations, we find that banks with greater levels of the ESGC score have higher levels of NPLs. The main effect goes through the Governance pillar and Controversies components. Our findings suggest that even if ESGC practices may enhance bank value and stability, a negative effect may directly emerge from the loan loss channel.

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References

2022Aggregate Confusion: The Divergence of ESG Ratings 2016On the Foundations of Corporate Social Responsibility 2008Panel data methods for fractional response variables with an application to test pass rates 2013Corporate social responsibility in the banking industry: Motives and financial performance 2007Comparing the performance of market-based and accounting-based bankruptcy prediction models 2021Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe 2020Do ESG scores effect bank risk taking and value? Evidence from European banks 2018Sustainable development and corporate governance in the financial system: Are environmentally friendly banks less risky?

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