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Balancing Bank Profits With Sustainable Development Goals: Examining the Pivotal Role of Financial Stability

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  • Nguyen Quoc Huy
  • Le Quoc Dinh

Abstract

Climate change is a global responsibility. To combat the destructive “brown economy,” sustainable development (SD) has become essential for all economies. Financial intermediaries are now pressured to support UN SD goals by divesting from high CO2‐emission projects and redirecting funds to SD activities. This shift creates a potential trade‐off between achieving SD goals and maintaining bank profitability. While existing literature predominantly views this relationship as linear, this study addresses the potential non‐linear dynamics by incorporating financial stability as a threshold variable. Using data from 60 countries between 2000 and 2020, the study employs threshold regression (PTR) and Bayesian regression methods. PTR results identify two thresholds, indicating a nonlinear relationship between SD and ROA when using Z‐score as the threshold variable, classifying countries into low financial stability (LFSs), medium financial stability (MFSs), and high financial stability (HFSs). Bayesian regression findings align with PTR, revealing that, in countries with high financial stability, investing in SD projects and activities yields high returns for commercial banks, while countries with low or medium financial stability do not see the same benefits. The study concludes with policy recommendations for the three country groups based on these findings.

Suggested Citation

  • Nguyen Quoc Huy & Le Quoc Dinh, 2025. "Balancing Bank Profits With Sustainable Development Goals: Examining the Pivotal Role of Financial Stability," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(S1), pages 1182-1199, November.
    • Handle: RePEc:wly:sustdv:v:33:y:2025:i:s1:p:1182-1199
    DOI: 10.1002/sd.70057
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    2. Jianping Cha & Yashan Deng & Kai Zhao & Feifei Li, 2026. "How Does the Development of the Digital Economy Enhance Farmers' Livelihood Resilience: The Roles of E‐Commerce and Digital Finance," Sustainable Development, John Wiley & Sons, Ltd., vol. 34(2), pages 2342-2358, April.
    3. Tran Hoang Minh Khoi & Huynh Van Quoc & Tran Gia Huy & Nguyen Thi Thuy Hang & Nguyen Minh Tai, 2026. "Assessing the Drivers of Sustainable Development in Vietnam: A Bayesian Perspective on Institutional Quality, Green Investment, and Globalization," Sustainable Development, John Wiley & Sons, Ltd., vol. 34(1), pages 1043-1060, February.
    4. Shuai Zhao & Muhammad Adil Javed & Xinxiang Gao, 2026. "Driving tourism growth through AI adoption in G-7 economies: a quantile regression approach," Information Technology & Tourism, Springer, vol. 28(1), pages 1-24, June.
    5. Yuanyuan Liu & Martijn Sander, 2026. "What Drives Energy Efficiency in the G20? Evidence From Finance, Education, and Sustainable Development," Sustainable Development, John Wiley & Sons, Ltd., vol. 34(2), pages 1838-1855, April.

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