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The amplified impact of ESG on banks with lower funding costs: Insights from G20 economies

Author

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  • Gupta, Simran
  • Chaudhary, Pankaj
  • Dawar, Varun

Abstract

Beyond traditional factors, banks face regulatory, litigation, and reputational risks due to ESG factors, which increasingly influence their cost of finance. This study empirically investigates the impact of Environmental, Social, and Governance (ESG) performance on deposit costs and the overall cost of funds. To achieve this, panel data methodologies are applied on a sample of 163 banks from G20 nations covering the period 2011–2023. The findings reveal a highly significant impact of ESG scores in reducing both deposit costs and the overall cost of funds. Unlike the Environmental factor, the Social and Governance components exert similar impacts. System GMM confirms this relationship. However, moderating role of state-owned banks distorts this relationship. Additionally, the findings indicate that impact of ESG is stronger at lower levels of borrowing costs than at higher levels, using the Method of Moments Quantile Regression (MM-QR) technique, confirming that low-risk banks benefit more from improved ESG performance.

Suggested Citation

  • Gupta, Simran & Chaudhary, Pankaj & Dawar, Varun, 2025. "The amplified impact of ESG on banks with lower funding costs: Insights from G20 economies," Finance Research Letters, Elsevier, vol. 85(PC).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pc:s1544612325012838
    DOI: 10.1016/j.frl.2025.108025
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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