SavedAdd your journal

Journals / Journal of Research in Economics / 2025 / Volume: 9 Issue: 2

Does Environmental, Social, Governance (ESG) Investments Influence Bank Performance? Cross-Country Evidence from emerging Markets

Mehtap Öner(MARMARA UNIVERSITY)0000-0001-7527-5875
Aslı Aybars(MARMARA ÜNİVERSİTESİ)0000-0002-7899-2367
Murat Çinko(MARMARA ÜNİVERSİTESİ)0000-0001-8560-7482
Emre Zehir(JCR-ER Rating)0000-0002-0262-1826
Pages
—
Publication Date
2025-10-21
DOI
—
🏛️Bibliographic metadata and full text access for this article are provided via DergiPark.
DergiPark Record ↗
✨

AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

The findings of this study offer important insights into the role of ESG practices within the banking industry, especially in emerging economies where the adoption and implementation of these practices may be in the early phases and differ considerably among institutions.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:This study aims to provide a comprehensive analysis of how Environmental, Social, and Governance (ESG) practices of banks influence their financial and market performance, which are proxied by return on assets (ROA) and Tobin’s Q, respectively.
📊
Key Findings & Data:The sample comprises 35 banks from 11 emerging market countries over the period from 2017 to 2022.
💡
Conclusion & Impact:The findings of this study offer important insights into the role of ESG practices within the banking industry, especially in emerging economies where the adoption and implementation of these practices may be in the early phases and differ considerably among institutions.
🔬Design:Modeling & Simulation
📍Scope:2017 Verileri
⚙️Variables:ESG · Banking sector · Emerging countries

Abstract

This study aims to provide a comprehensive analysis of how Environmental, Social, and Governance (ESG) practices of banks influence their financial and market performance, which are proxied by return on assets (ROA) and Tobin’s Q, respectively. The sample comprises 35 banks from 11 emerging market countries over the period from 2017 to 2022. To assess this relationship, two distinct models are estimated for each performance indicator, examining both contemporaneous and lagged effects. The results reveal a negative association between ESG scores and financial performance, consistent with the predictions of the Trade-off Hypothesis in that costs associated with ESG investments may outweigh their financial benefits . This negative relationship remains robust when considering the lagged effects. However, no significant impact is found between ESG practices and market performance, as proxied by Tobin’s Q, across the models tested. The findings of this study offer important insights into the role of ESG practices within the banking industry, especially in emerging economies where the adoption and implementation of these practices may be in the early phases and differ considerably among institutions.

🔖

Cite This Article

Öner, M., Aybars, A., Çinko, M., Zehir, E. (2025). Does Environmental, Social, Governance (ESG) Investments Influence Bank Performance? Cross-Country Evidence from emerging Markets. Journal of Research in Economics, Volume: 9 Issue: 2. https://ajindex.com/articles/1060278

📄 Full Text PDF Viewer

📄

PDF görüntüleyici hazırlanıyor...

References (38)

  1. Alam, A. W., Banna, H., & Hassan, M. K. (2022). ESG activities and bank efficiency: Are Islamic Banks Better? Journal of Islamic Monetary Economics and Finance, 8 (1): 65-88.
  2. Alghafes, R., Karim, S., Aliani, K., Qureishi, N., & Alkayed, L. (2024). Influence of key ESG factors on Islamic banks’ financial performance: Evidence from GCC countries. International Review of Economics & Finance. 96 (Part A): 103629. https://doi.org/10.1016/j.iref.2024.103629.
  3. Azmi, W., Hassan, M. K., Houston, R., & Karim, M. S. (2021). ESG activities and banking performance: International evidence from emerging economies. Journal of International Financial Markets, Institutions and Money, 70: 101277. https://doi.org/10.1016/j.intfin.2020.101277
  4. Baltagi, B. H. (2001). Econometric analysis of panel data. (2nd ed.). United Kingdom: John Wiley&Sons, Ltd.
  5. Bătae, O. M., Dragomir, V. D., & Feleagă, L. (2021). The relationship between environmental, social, and financial performance in the banking sector: A European study. Journal of Cleaner Production, 290: 125791. https://doi.org/10.1016/j.jclepro.2021.125791.
  6. Brogi, M., & Lagasio, V. (2018). Environmental, social, and governance and company profitability: Are financial intermediaries different? Corporate Social Responsibility and Environmental Management, 26: 576-587. Doi: 10.1002/csr.1704
  7. Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1): 98-115. Doi: 10.1108/MEQ-12-2017-0149
  8. Buallay, A., Fadel, S. M., Al-Ajmi, J. Y., & Saudagaran, S. (2020). Sustainability reporting and performance of MENA banks: Is there a trade-off? Measuring Business Excellence, 24(2): 197-221.
  9. Buallay, A., Fadel, S. M., Alajmi, J., & Saudagaran, S. (2021). Sustainability reporting and bank performance after financial crisis: Evidence from developed and developing countries. Competitiveness Review, 31(4): 747-770. Doi: 10.1108/CR-04-2019-0040
  10. Buallay, A. M., Marri, M. A., Nasrallah, N., Hamdan, A., Barone, E., & Zureigat, Q. (2023). Sustainability reporting in banking and financial services sector: A regional analysis. Journal of Sustainable Finance & Investment, 13(1): 776-801. Doi: 10.1080/20430795.2021.1978919
  11. Çetenak, E. H., Ersoy, E., & Işık, Ö. (2022). The effect of ESG (environmental, social and governance) scores on firm Performance: Evidence from Turkish banking industry. Erciyes Üniversitesi İİBF Dergisi, 63: 75-82. Doi: 10.18070/erciyesiibd.1212587
  12. Ersoy, E., Swiecka, B., Grima, S., Özen, E., & Romanova, I. (2022). The impact of ESG scores on bank market value? Evidence from the U.S. banking industry. Sustainability, 14: 9527. https://doi.org/10.3390/su14159527
  13. Esteban-Sanchez, P., de la Cuesta-Gonzalez, M., & Paredes-Gazquez, J.D. (2017). Corporate social performance and its relation with corporate financial performance: International evidence in the banking industry. Journal of Cleaner Production. 162: 1102e1110. https://doi.org/10.1016/j.jclepro.2017.06.127.
  14. Freeman, R.E. (1984), Strategic management: A stakeholder approach, Boston, MA.
  15. Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art.
  16. Friede, G., Busch, T., & Bassen, A., (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment. 5: 210e233. https://doi.org/10.1080/20430795.2015.1118917.
  17. Friedman, M., (1970). The social responsibility is to increase its profits. The New York Times Magazine, September 13: 32-3.
  18. Friedman, M. (2007). The social responsibility of business is to increase its profits. In Corporate Ethics and Corporate Governance, edited by W. C. Zimmerli, M. Holzinger, and K. Richter, 173– 178. New York, Springer.
  19. Gupta. J, & Kashiramka, S. (2020). Financial stability of banks in India: Does liquidity creation matter? Pacific-Basin Finance Journal, 64: 101439. doi.org/10.1016/j.pacfin.2020.101439.
  20. Jensen, M.C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4): 305–360.
  21. Khoury, R. E., Nasrallah, & Alareeni, B. (2023), ESG and financial performance of banks in the MENAT region: Concavity–convexity patterns. Journal of Sustainable Finance & Investment, 13(1): 406–430. https://doi.org/10.1080/20430795.2021.1929807
  22. Korkmaz, T. & Nur, T. (2023). The effect of ESG sustainability on firm performance: A view under size and age on BIST bank index firms. Journal of Research in Economics, Politics and Finance, 8(2): 208-223. Doi: 10.30784/epfad.1278491
  23. Lamanda, G. & Tamásné Vőneki, Z. (2024), Is ESG disclosure associated with bank performance? Evidence from the Visegrad four countries. Management of Environmental Quality, 35 (1): 201-219. https://doi.org/10.1108/MEQ-02-2023-0064
  24. LSEG Data & Analytics (2024). Environmental, Social and Governance scores from LSEG, 1-33. https://www.lseg.com/content/dam/data-analytics/en_us/documents/methodology/lseg-esg-scores-methodology.pdf
  25. Menicucci, E., & Paolucci, G. (2023). ESG dimensions and bank performance: An empirical investigation in Italy. Corporate Governance, 23(3): 563-586. Doi: 10.1108/CG-03-2022-0094
  26. Paltrinieri, A., Dreassi, A., Migliavacca, M., & Stefano Piserà, S. (2020). Islamic finance development and banking ESG scores: Evidence from a cross-country analysis. Research in International Business and Finance, 51: 101100. https://doi.org/10.1016/j.ribaf.2019.101100
  27. Preston, L. E., & O’Bannon, D. P. (1997), The corporate social-financial performance relationship: A typology and analysis. Business and Society, 36(4): 419-429.
  28. Sain, A. & Kashiramka, S. (2024), Do corporate governance mechanisms and ESG disclosures improve bank performance and stability in an emerging economy? Journal of Advances in Management Research, 21(4): 530-555. https://doi.org/10.1108/JAMR-12-2022-0253
  29. Serino, L., Spignese, A., & Campanella, F. (2024). Are ESG scores driven by financial information? Evidence from European banks. Journal of Risk Management in Financial Institutions, 17(4): 409-425.
  30. Shakil, M. H., Mahmood, N., Tasnia, M. & Munim, Z. H. (2019). Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks. Management of Environmental Quality, 30(6): 1331-1344. https://doi.org/10.1108/MEQ-08-2018-0155
  31. Tatoğlu, F. Y. (2020). Panel veri ekonometrisi stata uygulamalı (5th ed.). Istanbul: Beta Yayınları.
  32. Terraza, V. (2015) The effect of bank size on risk ratios: Implications of banks’ performance. Procedia Economics and Finance, 30: 903–9.
  33. Ungphakorn, T. (2024). Effects of country and firm specific factors on ESG performance: A cross- country analysis for emerging markets. Journal of Electrical Systems, 20(4s): 1705-1714.
  34. Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 80(2): 169-178.
  35. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2): 171–180. http://www.jstor.org/stable/2486175
  36. Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. London: The MIT Press. Wu, M. W., & Shen, C. H. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9): 3529-3547. https://doi.org/10.1016/j.jbankfin.2013.04.023.
  37. Yuen, M. K., Ngo, T., Le, T. D. Q. & Ho, T. H. (2022). The environment, social and governance (ESG) activities and profitability under COVID-19: Evidence from the global banking sector, Journal of Economics and Development, 24 (4): 345-364. https://doi.org/10.1108/JED-08-2022-0136.
  38. Yuen, M. K., Ngo, T., Le, T. D. Q. & Ho, T. H. (2022). The environment, social and governance (ESG) activities and profitability under COVID-19: Evidence from the global banking sector, Journal of Economics and Development, 24 (4): 345-364. https://doi.org/10.1108/JED-08-2022-0136.