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The Relationship between Environmental, Social and Governance Factors, Economic Growth, and Banking Activity

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  • Ioan-Iulian Norocel

    (Center of Financial and Monetary Research, Faculty of Finance and Banking, Bucharest University of Economic Studies, 010961 Bucharest, Romania)

  • Eugen-Marian Vierescu

    (Faculty of Finance and Banking, Bucharest University of Economic Studies, 010961 Bucharest, Romania)

Abstract

The sustainability-linked discussion has gained international importance, with the banking sector being an essential pillar of the new economy, particularly through channeling financial resources to environmentally friendly economic activities. It is, however, still unclear if ESG is profitable, both for the economy and banks. This paper aims at filling this gap by presenting, from a macroeconomic perspective, the impact of ESG efforts and the banking sector’s contribution to a sustainable economy. Using panel regression models with fixed effects, the study investigates the impact of ESG factors and banking activity on economic growth. The results show a negative relationship between country-level ESG scores and economic growth, both in the short and long run, while increased financial intermediation by the banking sector, used as a proxy of potential green lending activity, does not necessarily enhance economic growth. Through delving into the interplay between the ESG score, economic development, and banking activity, this research could serve as a discussion point for economists, bankers, and policymakers when designing the economic and financial strategies for transitioning to a green economy.

Suggested Citation

  • Ioan-Iulian Norocel & Eugen-Marian Vierescu, 2024. "The Relationship between Environmental, Social and Governance Factors, Economic Growth, and Banking Activity," JRFM, MDPI, vol. 17(7), pages 1-12, July.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:7:p:285-:d:1430411
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    References listed on IDEAS

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    2. Olivier Blanchard & Christian Gollier & Jean Tirole, 2023. "The Portfolio of Economic Policies Needed to Fight Climate Change," Annual Review of Economics, Annual Reviews, vol. 15(1), pages 689-722, September.
    3. Cerqueti, Roy & Ciciretti, Rocco & Dalò, Ambrogio & Nicolosi, Marco, 2021. "ESG investing: A chance to reduce systemic risk," Journal of Financial Stability, Elsevier, vol. 54(C).
    4. Robert G. Eccles & Ioannis Ioannou & George Serafeim, 2014. "The Impact of Corporate Sustainability on Organizational Processes and Performance," Management Science, INFORMS, vol. 60(11), pages 2835-2857, November.
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    Cited by:

    1. Iwan Suhardjo & Meiliana Suparman, 2024. "Employee Engagement and Green Finance: An Analysis of Indonesian Banking Sustainability Reports," JRFM, MDPI, vol. 17(12), pages 1-16, December.

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