This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information.

Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

Dreassi A.;Pisera S.
2021

Abstract

This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information.
File in questo prodotto:
File Dimensione Formato  
Do ESG strategies enhance bank stability during financial turmoil Evidence from Europe.pdf

accesso aperto

Tipologia: Versione Editoriale (PDF)
Licenza: Creative commons
Dimensione 3.4 MB
Formato Adobe PDF
3.4 MB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11390/1211832
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 3
  • ???jsp.display-item.citation.isi??? 3
social impact