Does Sustainability Pay Off? The Relationship Between ESG Risk Rating and Financial Performance in the Banking Sector.
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This study shows the relationship between Environmental, Social and Governance (ESG) performance and financial performance around international banks. The study uses a sample consisting of 10 banks from China and the United States. ESG performance is measured based on the Sustainalytics ESG Risk Rating, on the other hand, financial performance is measured based on the Return on Assets (ROA). To determine the relationship between these two variables we conducted a Pearson's correlation analysis, which gave us a correlation of -0.17 meaning that we have a weak negative correlation between the two variables. So, we could conclude that banks with stronger ESG performance generally tend to have higher profitability. However, this relationship is not statistically significant due to the size of the sample. These results coincide with a lot of previous research that suggests a positive relationship between ESG and financial performance. But this relationship is not always statistically significant, especially when accounting based measures are included in a specific industry. This study provides useful information for investors, bank managers and regulators interested in understanding the effect of ESG performance on the financial performance and adds to an ongoing discussion about ESG and financial performance.
Keywords
Banking Sector, Esg Performance, Esg Risk Rating, Financial Performance, Return On Assets, Sustainable Finance