IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v76y2025ics027553192500087x.html
   My bibliography  Save this article

ESG relevance in credit risk of development banks

Author

Listed:
  • Porenta, Jan
  • Rant, Vasja

Abstract

This paper investigates relevance of Environmental, Social, and Governance (ESG) risks in the context of banks' credit risk. Focusing on a global sample of 567 banks, including 40 development banks, we aim to discern nuances in ESG relevance scores between different bank types. Our findings highlight distinct differences between national and multilateral development banks, with ESG risk significantly influencing credit risk in the latter. Notably, social and governance factors play pivotal roles in shaping credit profiles. Development banks, at the forefront of promoting good ESG practices, face heightened exposure and risks. This paper contributes to the understanding of the evolving dynamics of ESG impact on creditworthiness.

Suggested Citation

  • Porenta, Jan & Rant, Vasja, 2025. "ESG relevance in credit risk of development banks," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s027553192500087x
    DOI: 10.1016/j.ribaf.2025.102831
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S027553192500087X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2025.102831?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Mario La Torre & Sabrina Leo & Ida Claudia Panetta, 2021. "Banks and environmental, social and governance drivers: Follow the market or the authorities?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(6), pages 1620-1634, November.
    2. Gutierrez, Eva & Rudolph, Heinz P. & Homa, Theodore & Beneit, Enrique Blanco, 2011. "Development banks : role and mechanisms to increase their efficiency," Policy Research Working Paper Series 5729, The World Bank.
    3. Geoffrey C. Kiel & Gavin J. Nicholson, 2003. "Board Composition and Corporate Performance: how the Australian experience informs contrasting theories of corporate governance," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(3), pages 189-205, July.
    4. Eduardo Fernández-Arias & Ricardo Hausmann & Ugo Panizza, 2020. "Smart Development Banks," Journal of Industry, Competition and Trade, Springer, vol. 20(2), pages 395-420, June.
    5. Faidon Kalfaoglou, 2021. "ESG risks: a new source of risks for the banking sector," Economic Bulletin, Bank of Greece, issue 53, pages 83-112, July.
    6. Zbigniew Korzeb & Renata Karkowska & Anna Matysek-Jędrych & Paweł Niedziółka, 2024. "How do ESG challenges affect default risk? An empirical analysis from the global banking sector perspective," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 42(1), pages 89-114, July.
    7. Dreher, Axel & Lang, Valentin F. & Richert, Katharina, 2019. "The political economy of International Finance Corporation lending," Journal of Development Economics, Elsevier, vol. 140(C), pages 242-254.
    8. Ruoyu Cai & Mao Zhang, 2017. "How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 241, pages 21-32.
    9. Stefano Battiston & Antoine Mandel & Irene Monasterolo & Franziska Schütze & Gabriele Visentin, 2017. "A climate stress-test of the financial system," Nature Climate Change, Nature, vol. 7(4), pages 283-288, April.
    10. Konstantinos Loizos, 2023. "Prolegomena to an Evolutionary Theory of Development Banking for a Sustainable Future," Journal of Economic Issues, Taylor & Francis Journals, vol. 57(2), pages 606-612, April.
    11. Woods, Ngaire, 2000. "The Challenge of Good Governance for the IMF and the World Bank Themselves," World Development, Elsevier, vol. 28(5), pages 823-841, May.
    12. Olga Mikheeva, 2024. "Development banks and state-led investments: new research questions," Innovation and Development, Taylor & Francis Journals, vol. 14(1), pages 111-133, January.
    13. Laurence Delina, 2017. "Multilateral development banking in a fragmented climate system: shifting priorities in energy finance at the Asian Development Bank," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(1), pages 73-88, February.
    14. Alvaro Mendez & David Patrick Houghton, 2020. "Sustainable Banking: The Role of Multilateral Development Banks as Norm Entrepreneurs," Sustainability, MDPI, vol. 12(3), pages 1-21, January.
    15. Doga Izcan & Eralp Bektas, 2022. "The Relationship between ESG Scores and Firm-Specific Risk of Eurozone Banks," Sustainability, MDPI, vol. 14(14), pages 1-21, July.
    16. Michelangelo Bruno & Valentina Lagasio, 2021. "An Overview of the European Policies on ESG in the Banking Sector," Sustainability, MDPI, vol. 13(22), pages 1-10, November.
    17. Antoine Ebeling, 2022. "European investment bank loan appraisal, the EU climate bank?," International Economics, CEPII research center, issue 172, pages 203-216.
    18. Michela Scatigna & Dora Xia & Anna Zabai & Omar Zulaica, 2021. "Achievements and challenges in ESG markets," BIS Quarterly Review, Bank for International Settlements, December.
    19. Xiao Shi & Wenqi Yu, 2021. "Analysis of Chinese Commercial Banks’ Risk Management Efficiency Based on the PCA-DEA Approach," Mathematical Problems in Engineering, Hindawi, vol. 2021, pages 1-11, October.
    20. Isam Saleh & Malik Abu Afifa & Louis Murray, 2020. "The effect of credit risk, liquidity risk and bank capital on bank profitability: Evidence from an emerging market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1814509-181, January.
    21. Blerita Korca & Ericka Costa & Federica Farneti, 2021. "From voluntary to mandatory non-financial disclosure following Directive 2014/95/EU: an Italian case study," Accounting in Europe, Taylor & Francis Journals, vol. 18(3), pages 353-377, September.
    22. Ebeling, Antoine, 2022. "European investment bank loan appraisal, the EU climate bank?," International Economics, Elsevier, vol. 172(C), pages 203-216.
    23. Mona Lyne & Daniel Nielson & Michael Tierney, 2009. "Controlling coalitions: Social lending at the multilateral development banks," The Review of International Organizations, Springer, vol. 4(4), pages 407-433, December.
    24. Mariarosa Borroni & Simone Rossi, 2019. "Bank Profitability: Measures and Determinants," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Banking in Europe, chapter 0, pages 23-53, Palgrave Macmillan.
    25. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    26. Reyes Samaniego-Medina & Pilar Giraldez-Puig, 2022. "Do Sustainability Risks Affect Credit Ratings? Evidence from European Banks," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 24(61), pages 720-720, August.
    27. Anthony Bebbington & Scott Guggenheim & Elizabeth Olson & Michael Woolcock, 2004. "Exploring Social Capital Debates at the World Bank," Journal of Development Studies, Taylor & Francis Journals, vol. 40(5), pages 33-64.
    28. de Luna-Martinez, Jose & Vicente, Carlos Leonardo, 2012. "Global survey of development banks," Policy Research Working Paper Series 5969, The World Bank.
    29. Fox, Jonathan A, 2000. "The World Bank and social capital: Lessons from ten rural development projects in the Philippines and Mexico," Center for Global, International and Regional Studies, Working Paper Series qt1vj8v86j, Center for Global, International and Regional Studies, UC Santa Cruz.
    30. Joseph E. Stiglitz, 2000. "The Contributions of the Economics of Information to Twentieth Century Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1441-1478.
    31. Dan Costin Nitescu & Valentin Murgu & Valentin Murgu, 2023. "Multilateral development banks – Strategic actors in the new economy?," E&M Economics and Management, Technical University of Liberec, Faculty of Economics, vol. 26(3), pages 145-157, September.
    32. Galletta, Simona & Goodell, John W. & Mazzù, Sebastiano & Paltrinieri, Andrea, 2023. "Bank reputation and operational risk: The impact of ESG," Finance Research Letters, Elsevier, vol. 51(C).
    33. John Goddard & Phil Molyneux & John O. S. Wilson, 2004. "The profitability of european banks: a cross‐sectional and dynamic panel analysis," Manchester School, University of Manchester, vol. 72(3), pages 363-381, June.
    34. Carnevale, Concetta & Drago, Danilo, 2024. "Do banks price ESG risks? A critical review of empirical research," Research in International Business and Finance, Elsevier, vol. 69(C).
    35. Caterina Di Tommaso & John Thornton, 2020. "Do ESG scores effect bank risk taking and value? Evidence from European banks," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2286-2298, September.
    36. Vasja Rant, 2024. "Regulating Sustainable Finance and the Green Transition in the EU," World Scientific Book Chapters, in: Sabri Boubaker & Thai-Ha Le (ed.), HANDBOOK OF ENVIRONMENTAL AND GREEN FINANCE Toward a Sustainable Future, chapter 12, pages 359-405, World Scientific Publishing Co. Pte. Ltd..
    37. Azmi, Wajahat & Hassan, M. Kabir & Houston, Reza & Karim, Mohammad Sydul, 2021. "ESG activities and banking performance: International evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    38. Magdalena Ziolo, 2021. "Business Models of Banks Toward Sustainability and ESG Risk," Palgrave Studies in Impact Finance, in: Sustainability in Bank and Corporate Business Models, chapter 0, pages 185-209, Palgrave Macmillan.
    39. Galletta, Simona & Mazzù, Sebastiano & Naciti, Valeria, 2022. "A bibliometric analysis of ESG performance in the banking industry: From the current status to future directions," Research in International Business and Finance, Elsevier, vol. 62(C).
    40. Witold J. Henisz & James McGlinch, 2019. "ESG, Material Credit Events, and Credit Risk," Journal of Applied Corporate Finance, Morgan Stanley, vol. 31(2), pages 105-117, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:osf:osfxxx:753gf_v1 is not listed on IDEAS
    2. Arnone, Massimo & Leogrande, Angelo, 2024. "The Sustainability Of The Factoring Chain In Europe In The Light Of The Integration Of Esg Factors," OSF Preprints 753gf, Center for Open Science.
    3. Murè, P. & Giorgio, S. & Antonelli, V. & Bittucci, L., 2025. "Environmental credit products: Where do we stand? A response from an academic content analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 100(C).
    4. Fiordelisi, Franco & Ricci, Ornella & Santilli, Gianluca, 2023. "Environmental engagement and stock price crash risk: Evidence from the European banking industry," International Review of Financial Analysis, Elsevier, vol. 88(C).
    5. 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.
    6. Gupta, Juhi & Kashiramka, Smita, 2024. "Examining the impact of liquidity creation on bank stability in the Asia Pacific region: Do ESG disclosures play a moderating role?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    7. Galletta, Simona & Mazzù, Sebastiano & Naciti, Valeria, 2022. "A bibliometric analysis of ESG performance in the banking industry: From the current status to future directions," Research in International Business and Finance, Elsevier, vol. 62(C).
    8. Cantero-Saiz, María & Polizzi, Salvatore & Scannella, Enzo, 2024. "ESG and asset quality in the banking industry: The moderating role of financial performance," Research in International Business and Finance, Elsevier, vol. 69(C).
    9. Gaia Soana, Maria, 2024. "Does ESG contracting align or compete with stakeholder interests?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
    10. Bakkar, Yassine & Bark, Eunice & Prause, Gunnar & Ul-Durar, Shajara, 2025. "Green Deal and financing sustainable transport in Europe: A target costing analysis," Transport Policy, Elsevier, vol. 163(C), pages 185-198.
    11. Hai-Yen Chang & Lien-Wen Liang & Yu-Luan Liu, 2021. "Using Environmental, Social, Governance (ESG) and Financial Indicators to Measure Bank Cost Efficiency in Asia," Sustainability, MDPI, vol. 13(20), pages 1-20, October.
    12. Afef Bouattour & Maha Kalai & Kamel Helali, 2024. "The non-linear relationship between ESG performance and bank stability in the digital era: new evidence from a regime-switching approach," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    13. Kun‐Shan Wu & Bao‐Guang Chang, 2022. "The concave–convex effects of environmental, social and governance on high‐tech firm value: Quantile regression approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1527-1545, September.
    14. Marco FRIGERIO & Daniela VANDONE, 2018. "Virtuous or Vicious? Development Banks in Europe," Departmental Working Papers 2018-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    15. Chen, Sheng-Li & Wang, Dan-ni & Chen, Hao-Wei, 2025. "The impact of ESG factors on credit ratings: An empirical study of European banks," International Review of Economics & Finance, Elsevier, vol. 99(C).
    16. Michał Bernardelli & Zbigniew Korzeb & Paweł Niedziółka, 2022. "Does Fossil Fuel Financing Affect Banks’ ESG Ratings?," Energies, MDPI, vol. 15(4), pages 1-19, February.
    17. Volker Brühl, 2023. "The Green Asset Ratio (GAR): a new key performance indicator for credit institutions," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 57-83, March.
    18. Baek, Seungho & Kang, Moonsoo, 2025. "Does ESG enhance asset quality and funding cost management in banking diversification?," Finance Research Letters, Elsevier, vol. 73(C).
    19. Bruno, Elena & Pistolesi, Francesco & Teti, Emanuele, 2025. "Cybersecurity policy, ESG and operational risk: A Virtuous relationship to improve banks’ performance," International Review of Economics & Finance, Elsevier, vol. 99(C).
    20. Giovanni Baldissarro & Maria Elena Bruni & Gianpaolo Iazzolino & Donato Morea & Stefania Veltri, 2024. "Does It Pay Off to Integrate ESG Performance into Bank Investment Portfolio Selection? Empirical Evidence in the European Energy Sector," Sustainability, MDPI, vol. 16(23), pages 1-20, December.
    21. Tarek Roshdy Gebba & Mohamed Gamal Aboelmaged, 2016. "Corporate Governance of UAE Financial Institutions: A Comparative Study between Conventional and Islamic Banks," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(5), pages 1-7.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s027553192500087x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.