The Role of ESG Ratings in Shaping Chinese Commercial Banks’ Performance: Empirical Evidence

With the growing global emphasis on sustainable development and social responsibility, environmental, social and governance (ESG) ratings have emerged as critical metrics for evaluating commercial banks’ operating performance. This study uses panel data spanning 2009 to 2022 from large state-owned and joint-stock commercial banks in China. It employs a two-way fixed effects model and robustness tests, along with tests for heterogeneity analysis and moderating effects to conduct empirical analysis. The findings of the fixed effect model indicate that improvements in ESG performance have advantageous impacts on commercial banks’ operating performance, particularly with higher growth rates for operating income. Robustness tests including mixed regressions, Tobit tests, variable substitutions, and tests of endogenous bias, which have validated that initial regression findings still hold. Tests of heterogeneity analysis reveal that among large state-owned commercial banks, banks with higher leverage, larger major shareholder ownership, and larger bank scales, ESG performance can significantly affect their operating performance, and the relationship is positive. Furthermore, the study finds that the Gross Domestic Price (GDP) growth rate, Consumer Price Index (CPI), and analysts’ coverage can strengthen the relationship between ESG performance and commercial banks’ operating performance through moderating effects. This research provides policy proposals and strategic recommendations tailored to policymakers, banks, and investors, building on these insights.