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The Impact of commercial banks' ESG performance: Difference between provocative and passive risk-taking – Evidence from China

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  • Wen, Bohui
  • You, Wei
  • Yuan, Ming

Abstract

In recent years, the rise of ESG concepts has gradually had an impact on economic entities, and commercial banks are also facing changes in their risk-taking behavior while practicing ESG concepts. This paper takes data of 42 A-share listed commercial banks in China from 2009Q1 to 2023Q3 to analyze the impact of ESG performance on commercial banks by distinguishing between proactive and passive risk-taking. The findings reveal that strong ESG performance promotes proactive risk-taking while suppressing passive risk-taking, ultimately reducing overall passive risk-taking. This helps improve asset quality, mitigate the risk of asset deterioration, and enhance financing functions of commercial banks. Mechanism tests show that ESG performance fosters proactive risk-taking by accumulating reputational capital, while curbing passive risk-taking through optimizing credit structures and alleviating information asymmetry. Regulatory effect analysis indicates that expanding the MPA (Macroprudential Assessment) to the green sector can moderate the positive impact of ESG performance on proactive risk-taking, preventing excessive risk-taking. This study provides recommendations for the banking industry to balance ESG practices with financial stability under the "dual carbon" goals.

Suggested Citation

  • Wen, Bohui & You, Wei & Yuan, Ming, 2025. "The Impact of commercial banks' ESG performance: Difference between provocative and passive risk-taking – Evidence from China," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001151
    DOI: 10.1016/j.ribaf.2025.102859
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