DOES BANK’S SIZE AFFECT THE RELATIONSHIP BETWEEN ESG FRAMEWORK AND BANK STABILITY? EVIDENCE FROM THE GLOBAL BANKING INDUSTRY

This study contributes to the growing debate on the relationship between environmental, social and governance (ESG) sustainability and the banking industry. Using data originating out of 473 banks from 75 countries from 2007 to 2016, this study examines whether the banks’ size affects banking stability by adopting the ESG principles. To distinguish the aggregate and individual components’ impact of ESG on banks’ stability separately, the generalized method of moments (GMM) is utilized. The findings show that the ESG influence big and small banks’ stability in the opposite direction. The positive impact is reported for big banks while the negative impact is reported for their smaller counterparts. This study suggests that incorporating ESG into banks’ investment activities is an effective strategy to attract ethically conscious investors and thus broaden banks’ investors’ base. Furthermore, the results are robust to the inclusion of additional bank-specific and macroeconomic variables such as assets, return, and gross domestic product (GDP). The overall findings of ESG sustainability integration in this study offer important implications for the global banking industry, investors and regulators to support ESG investment options. Vbcbc

Keywords:

:Banking industry, banks stability, environmental, social and governance (ESG), sustainability.

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