The Impact of Sustainable Practices on Bank Returns

Given their important role as intermediaries in financial transactions and executors of monetary policies, banks are being asked to be key players in implementing sustainable practices. However, empirical research has shown conflicting results on the relationship between environmental, social, and governance (ESG) scores and banks' profitability and value. Therefore, this study aims to verify whether sustainable practices impact banks' returns and value creation. In addition, it identifies whether there are differences between the effects of individual ESG dimensions on financial institutions in developed and emerging countries. To this end, a sample of 195 publicly traded commercial banks from 69 countries is considered - 39 developed and 30 emerging. The data are obtained from the Bloomberg and World Bank databases for the period 2013 to 2022. They are analyzed using a logistic regression model. As a result, it is found that sustainable practices impact banks' returns and that this effect is different between developed and emerging countries. Developed countries show positive short-term returns, especially in social practices. However, in the long term, they do not recognize the economic sustainability or value creation of ESG actions, particularly in the corporate governance dimension. Â JEL classification numbers: G21, M14, O16.