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ESG and systemic risk

Author

Listed:
  • George Marian Aevoae
  • Alin Marius Andrieș
  • Steven Ongena
  • Nicu Sprincean

Abstract

How do changes in Environmental, Social and Governance (ESG) scores influence banks’ systemic risk contribution? Using a dynamic panel model, we document a beneficial impact of the ESG Combined Score and Governance pillar on banks’ contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007–2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank-specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. The results are robust to alternative measures of systemic risk, both contribution and exposure, as well as when estimating a static model. Our findings stress the importance of integrating banks’ ESG disclosure into regulatory authorities’ supervisory mechanisms as qualitative information.

Suggested Citation

  • George Marian Aevoae & Alin Marius Andrieș & Steven Ongena & Nicu Sprincean, 2023. "ESG and systemic risk," Applied Economics, Taylor & Francis Journals, vol. 55(27), pages 3085-3109, June.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:27:p:3085-3109
    DOI: 10.1080/00036846.2022.2108752
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    Cited by:

    1. Citterio, Alberto & King, Timothy, 2023. "The role of Environmental, Social, and Governance (ESG) in predicting bank financial distress," Finance Research Letters, Elsevier, vol. 51(C).
    2. Andrieș, Alin Marius & Sprincean, Nicu, 2023. "ESG performance and banks’ funding costs," Finance Research Letters, Elsevier, vol. 54(C).

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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