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When interest rates rise, ESG is still relevant – The case of banking firms

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  • Sun, Tingting
  • Mirza, Nawazish
  • Umar, Muhammad
  • Ktaish, Farah

Abstract

This study assesses whether ESG performance continues to drive banking outcomes during an unprecedented increase in interest rates. Analyzing a sample of banks from twenty-seven EU countries from Q3 2022 to Q1 2024, we find that ESG factors remain crucial for banking performance. Our evidence suggests that banks with fewer ESG controversies and higher ESG scores exhibit better risk-adjusted performance. Furthermore, institutions with stronger ESG profiles experience lower credit infections and consequently maintain better asset quality. These findings underscore the robust role of ESG factors in banking performance, regardless of interest rate regimes.

Suggested Citation

  • Sun, Tingting & Mirza, Nawazish & Umar, Muhammad & Ktaish, Farah, 2024. "When interest rates rise, ESG is still relevant – The case of banking firms," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324011577
    DOI: 10.1016/j.frl.2024.106128
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    References listed on IDEAS

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    Cited by:

    1. Dou, Jie & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "ESG uncertainties and valuation implications: Evidence from the EU banking sector," Research in International Business and Finance, Elsevier, vol. 76(C).
    2. Ariefianto, Moch Doddy & French, Joseph J. & Gurdgiev, Constantin, 2025. "Green regulation, market power, and geopolitical risk: the case of Indonesian banks," Finance Research Letters, Elsevier, vol. 85(PE).
    3. Zheng, Liya & Mirza, Nawazish & Umar, Muhammad & Su, Chi-Wei, 2025. "Sustainable lending to European SMEs: Implications for bank performance," International Review of Economics & Finance, Elsevier, vol. 102(C).
    4. Huang, Pai-Chin & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "Impact of environmental double materiality on firm valuation: Evidence from the EU," International Review of Economics & Finance, Elsevier, vol. 103(C).
    5. Wang, Bing & Mirza, Nawazish & Umar, Muhammad & Shan, Shan, 2025. "Firm valuation under climate uncertainty: The role of climate risk exposure and disclosure practices," International Review of Financial Analysis, Elsevier, vol. 108(PB).
    6. Verma, Geetanjali & Kashiramka, Smita, 2025. "Balancing ESG disclosures and cost efficiency: Implications for bank liquidity," Finance Research Letters, Elsevier, vol. 85(PC).
    7. Yao, Chia-ling & Umar, Muhammad & Mirza, Nawazish & Qin, Meng, 2025. "Climate performance and debt structure: The case of European SMEs," International Review of Economics & Finance, Elsevier, vol. 101(C).

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