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ESG performance and capital investment: Understanding the role of bank financing in BRICS countries

Author

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  • Wen, Jun
  • Farooq, Umar
  • Alomair, Abdulrahman
  • Al Naim, Abdulaziz S.

Abstract

The incorporation of environmental, social, and governance (ESG) practices into financial decision-making has become increasingly notable. This study examines the impact of ESG performance on corporate capital investment, as well as the intervening role of bank financing, in BRICS countries. The study utilizes a comprehensive dataset over the period 2010–2022 and employs fixed effect and system generalized method of moments (GMM) models to analyze the data. The empirical findings reveal a positive impact of corporate ESG performance and bank financing on capital investment. Notably, bank financing emerges as a significant factor positively influencing capital investment decisions, suggesting a crucial role in bridging sustainable finance and capital allocation. The study identifies a mediating relationship, emphasizing that the positive effect of ESG performance on capital investment remains consistent in the presence of bank financing. Corporate investors, financial institutions, and policymakers can gain actionable insights from the findings. It guides corporate investors in understanding how ESG performance influences investment attractiveness, assists financial institutions in refining lending practices, and provides policymakers with insights for shaping regulations that foster sustainable practices. As businesses and investors recognize the imperative of integrating ESG considerations, the insights from this study contribute to a more sustainable and resilient global financial system. This study contributes to existing literature by addressing gaps in understanding the nuanced impact of ESG performance on capital investment decisions and the mediating role of bank financing.

Suggested Citation

  • Wen, Jun & Farooq, Umar & Alomair, Abdulrahman & Al Naim, Abdulaziz S., 2025. "ESG performance and capital investment: Understanding the role of bank financing in BRICS countries," Research in International Business and Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003149
    DOI: 10.1016/j.ribaf.2025.103058
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    Keywords

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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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

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