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ESG investment and bank efficiency: Evidence from China

Author

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  • Cao, Qiang
  • Zhu, Tingting
  • Yu, Wenmei

Abstract

Although environmental, social, and governance (ESG) investment is essential to achieving sustainable development, previous studies usually focused on the relation between ESG investment and non-financial firms but neglected its impact on bank efficiency. To fill this research gap, we use a stochastic frontier analysis (SFA) model to investigate the influence of ESG investment on banks' profit efficiency and to explore whether financial technology (fintech) can strengthen the relationship between them. Results show that increasing ESG investment is beneficial to bank efficiency. We also find structural differences in the influence of ESG investment on bank efficiency. Specifically, environmental (E) and governance (G) investments enhance bank efficiency, while social (S) variables reduce bank efficiency. In addition, fintech has a moderating effect. When the level of fintech is high, ESG investment rises, and the increase in bank efficiency is more significant. Finally, by conducting a time-varying analysis of bank efficiency, we find that banks with higher ESG investments are more efficient. Under the goal of sustainable development, strengthening ESG investment and focusing on the empowering role of fintech are essential ways for commercial banks to increase efficiency.

Suggested Citation

  • Cao, Qiang & Zhu, Tingting & Yu, Wenmei, 2024. "ESG investment and bank efficiency: Evidence from China," Energy Economics, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:eneeco:v:133:y:2024:i:c:s014098832400224x
    DOI: 10.1016/j.eneco.2024.107516
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    Keywords

    ESG; Bank efficiency; Fintech;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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