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The Impact of Environmental, Social and Governance (ESG) Pillar Scores on Banking Sector Stock Returns: An Empirical Analysis of Banks in the MSCI Emerging Market Index

Author

Listed:
  • Hüseyin Öcal

    (Istanbul Gelişim University, Türkiye)

  • Tarik Yilmaz

    (Marmara University, Istanbul, Türkiye)

  • Anton Abdulbasah Kamil

    (Istanbul Gelişim University, Türkiye)

Abstract

This article examines whether investing in ESG impacts banks' stock returns, aiming to illustrate the value generated by ESG investment in the MSCI Emerging Markets Index. The fiscal year-end data of thirty-five financial companies within the Index, covering the period from December 31, 2015, to December 31, 2022, have been utilised. The analysis employs a pooled panel regression model utilising robust least squares estimation. Firm-specific and market-specific variables are used as independent variables. We have observed a significant positive direct relationship between the social pillar score and stock returns. Banks may initiate investments in social pillars in the Index. In addition, firm-specific variables such as market capitalisation, return on equity, capital adequacy, and price-earnings ratio influence the relationship between ESG pillar scores and stock returns. We recommend that portfolio managers closely monitor improvements in ESG pillar scores alongside firm-specific variables to predict banks' stock returns in the index.

Suggested Citation

  • Hüseyin Öcal & Tarik Yilmaz & Anton Abdulbasah Kamil, 2025. "The Impact of Environmental, Social and Governance (ESG) Pillar Scores on Banking Sector Stock Returns: An Empirical Analysis of Banks in the MSCI Emerging Market Index," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 11(2), pages 163-181.
    • Handle: RePEc:men:journl:v:11:y:2025:i:2:p:163-181
    DOI: 10.11118/ejobsat.2025.010
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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • 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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