Unveiling the Efficiency Black Box of Chinese Commercial Banks through the Lens of ESG

The efficiency of commercial banks is a comprehensive reflection of their core competitiveness. As Environmental, Social, and Governance (ESG) factors become the "weather vane" and "mandatory subject" for the sustainable development of Chinese commercial banks, utilizing more robust and reliable models to evaluate such a complex system has become crucial for achieving sustainable development. In this context, we have innovatively developed a window three-stage DDF (directional distance function) DEA (data envelopment analysis) with AR model to open the "black box" of the Chinese commercial banking system layer by layer from an ESG perspective. This study re-examines the efficiency status of Chinese commercial banks from 2011 to 2020 and delves into the stages and indicator factors that constrain efficiency improvement. The study finds that our proposed model framework enhances the credibility of efficiency results both theoretically and practically, making them more aligned with the actual operational processes of commercial banks. Although the overall efficiency level of the Chinese commercial banking system is relatively low, it shows a significant upward trend. There is a clear correlation between comprehensive efficiency and stage efficiency. Efforts by commercial banks to improve comprehensive efficiency through the enhancement of operational, ESG, and market efficiency in three sub-stages are effective.