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Is ESG a Determinant of Banks’ resilience and Growth Everywhere? A Response from an AI-Aided Approach
There are many calls for banks to expand their contribution to the transition towards a sustainable world by sponsoring initiatives that promote the United National Sustainable Development Goals. This role is more materialized in developing countries as banks are the key source of funding; thus, the...
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AUC Knowledge Fountain
2024
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| Summary: | There are many calls for banks to expand their contribution to the transition towards a sustainable world by sponsoring initiatives that promote the United National Sustainable Development Goals. This role is more materialized in developing countries as banks are the key source of funding; thus, they have the power of money to mutate the DNA of businesses to operate responsibly with respect to the surrounding environment and society. Various studies consider the reflection of adopting sustainable approaches by banks, though focusing on developed countries who took the initiative to lead this change. As the banks in developing countries try to catch this up, there is a question about how this endeavor reflects on their return and risk profiles. This study empirically shows that unlike banks in Europe, North America, and Asia, banks in other less-developed areas may exhibit lower returns as they expand their focus on the transition to sustainability rather than asset growth. On the other hand, the study also reveals for those banks in less-developed contexts, there is no significant relationship between banks’ sustainable performance and their resilience to distress. These results help to portray an inclusive view of the sustainability-focused strategies in various frameworks where high-income nations are expected to expand their support for poorer countries in order to alleviate their cost of transition especially as the climate change and resources depletion’s responsibility is not evenly shared. Also, the study helps policy makers to consider the importance of the prudential supervisory framework to promote sustainability though in relevance to the country’s economic and regulatory maturity. From another perspective, the results are useful for banks drawing their strategies to consider the reflection of their engagement in the environmental and social preservation practices within various economic contexts. |
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