How ESG Scores are Related to Financial Performance: Focusing on the Case of the Banking Sector

Abstract

Purpose - Environment Social Governance (ESG) disclosure has been widely conducted by listed companies globally as investors importantly value companies’ ESG policies and implementation. The purpose of this study is to identify the relationships between ESG scores and financial performance of listed companies, particularly in the banking sector, and to determine whether there is the significant importance of ESG activities by financial institutions Design/Methodology/Approach - This study sampled 53 banking groups and examined their five-year ESG scores, and financial performance. The independent variable is the ESG data of Bloomberg ESG data and S&P Global ESG scores; the dependent variables are performance indicators (return on assets; return on equity). Findings - Empirical evidence demonstrates that a company’s ROE is negatively affected by ED, an environmental variable, and positively affected by a social variable, CSRD, while controlling the company’s stock price and GDP of the country. Research Implications - We expect the results of this research to be analyzed based on the data in the next 5 to 10 years. This study will provide a meaningful interpretation for many investors who make investment decisions through inclusion/exclusion. We suggest banking groups focus more on ESG &sustainability reporting.