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Bank credit loss and ESG performance

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  • Bruno, Elena
  • Iacoviello, Giuseppina
  • Giannetti, Caterina

Abstract

We study the impact of ESG scores on Non-performing loans (NPLs) for a sample of European listed banks over the period 2002–2020. Relying on two different types of instrumental variables and fractional logit estimations, we find that banks with greater levels of the ESG score have higher levels of NPLs. The main effect goes through the Governance pillar and Controversies components. Our findings suggest that even if ESG practices may enhance bank value and stability, a negative effect may directly emerge from the loan loss channel.

Suggested Citation

  • Bruno, Elena & Iacoviello, Giuseppina & Giannetti, Caterina, 2024. "Bank credit loss and ESG performance," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010917
    DOI: 10.1016/j.frl.2023.104719
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    More about this item

    Keywords

    Non-performing loans; Banks; ESGC score; Fractional logit;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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