Sustainable Banking Practice: The Role of Environmental, Social, and Governance Factors

Sustainability has transcended beyond a mere slogan in the banking sector and has emerged as a pivotal concept that will steer the trajectory of the industry in the forthcoming years. This research has specifically selected the preeminent banks in India, Europe, and the United States of America. Notably, the ESG score for Indian banks is relatively lower in comparison with the average ESG disclosure score for European and American banks. It is noteworthy that the ESG-Control Group-Variable exhibits an unfavorable association with the operational performance of the firm, as indicated by the ROA metric, while a favorable correlation exists between the Control-Group-Variable and Governance-Group-Variable. Furthermore, the ESG-Control Group-Variable demonstrates an adverse relationship with the ROE metric, while a positive relationship exists between the Control-Group-Variable and Governance-Group-Variable. Overall, the ESG-Group-Variable displays a negative relationship with the financial indicators, indicating that companies expending more on ESG activities face a setback in their financial performance metrics. One plausible justification for this phenomenon is that companies are directing funds from more economically lucrative activities toward ESG initiatives, resulting in short-term profits. Country-level analysis reveals that India is the only region displaying a positive relationship between the ESG-Group-Variable and the financial indicators. This could be attributed to the fact that in India, ESG activities are often a by-product of CSR initiatives.