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The Effect of ESG Performance on Bank Liquidity Risk

Author

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  • Jiaze Liu

    (School of Management, Northeastern University at Qinhuangdao, Qinhuangdao 066004, China)

  • Jifei Xie

    (School of Management, Northeastern University at Qinhuangdao, Qinhuangdao 066004, China)

Abstract

In recent years, investors have increasingly focused on the environmental, social, and governance (ESG) performance of businesses, driven by the rising importance of social and environmental challenges. This trend highlights the critical role of ESG factors in the financial sector. This study leverages stakeholder theory, risk management theory, and ESG investment theory, utilising financial data and ESG scores from Chinese listed banks to comprehensively analyse ESG elements and examine their impact on the liquidity risk of commercial banks. The results show that: (1) Enhanced ESG performance can mitigate liquidity risk in commercial banks by reducing the proportion of non-performing loans and improving overall financial performance. (2) By standardising and implementing sustainable business practices, ESG elements can improve commercial banks’ liquidity management levels and lessen the incidence and effects of liquidity risk. As a result, it is critical to lower banks’ liquidity risk and support the long-term growth of commercial banks from five angles: information disclosure, differentiated reform, digital transformation, education and training, and international cooperation.

Suggested Citation

  • Jiaze Liu & Jifei Xie, 2024. "The Effect of ESG Performance on Bank Liquidity Risk," Sustainability, MDPI, vol. 16(12), pages 1-23, June.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:12:p:4927-:d:1411346
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    References listed on IDEAS

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    1. Zbigniew Korzeb & Paweł Niedziółka & Danuta Szpilko & Filippo Pietro, 2024. "ESG and climate-related risks versus traditional risks in commercial banking: A bibliometric and thematic review," Future Business Journal, Springer, vol. 10(1), pages 1-22, December.

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