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ESG activity and bank lending during financial crises

Author

Listed:
  • Gamze Ozturk Danisman
  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economiques - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

This paper explores how banks' environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of 83 listed banks from 20 European countries for the 2002-2020 period and consider the global financial crisis of 2007-2009 and the European sovereign debt crisis of 2010-2012. We implement two-step system GMM dynamic panel data estimation techniques. We also address potential endogeneity issues using instrumental variables (IV) and two-stage least squares (2SLS) estimations by instrumenting ESG activity with board gender diversity. We find that lending falls to a lesser extent for banks with higher ESG scores during crisis times. Looking at the different potential channels shows that, during crises, banks more engaged in ESG activities are less affected in terms of credit and asset risk, and profitability. They also face a lower reduction in market funding, allowing them to downsize to a lesser extent during crises, and their deposit rates do not increase as much as in less ESG-engaged banks. Going deeper reveals that our findings are mainly driven by the environmental pillar component of ESG scores.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Gamze Ozturk Danisman & Amine Tarazi, 2024. "ESG activity and bank lending during financial crises," Post-Print hal-04618475, HAL.
    • Handle: RePEc:hal:journl:hal-04618475
    DOI: 10.1016/j.jfs.2023.101206
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    Cited by:

    1. repec:hal:journl:hal-04790588 is not listed on IDEAS
    2. Sirimon Treepongkaruna & Hue Hwa Au Yong & Steen Thomsen & Khine Kyaw, 2024. "Greenwashing, carbon emission, and ESG," Business Strategy and the Environment, Wiley Blackwell, vol. 33(8), pages 8526-8539, December.
    3. Liu, Suyi & Jin, Justin & Nainar, Khalid, 2023. "Does ESG performance reduce banks’ nonperforming loans?," Finance Research Letters, Elsevier, vol. 55(PA).
    4. repec:osf:socarx:aetb9_v1 is not listed on IDEAS
    5. Rega, Federico Giovanni & Russo, Simona & Salerno, Dario, 2025. "Disentangling the S and the G in the European banking industry: The role of climate risk and opportunity awareness," Research in International Business and Finance, Elsevier, vol. 77(PB).
    6. Massimo Arnone & Lucio Laureti & Alberto Costantiello & Fabio Anobile & Angelo Leogrande, 2024. "The Access to Credit in the Context of the ESG Framework at Global Level," Working Papers hal-04666588, HAL.
    7. Ling, Aifan & Li, Jinlong & Zhang, Yugui, 2023. "Can firms with higher ESG ratings bear higher bank systemic tail risk spillover?—Evidence from Chinese A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    8. Owolabi, Ayotola & Mousavi, Mohammad Mahdi & Gozgor, Giray & Li, Jing, 2024. "The impact of carbon risk on the cost of debt in the listed firms in G7 economies: The role of the Paris agreement," Energy Economics, Elsevier, vol. 139(C).
    9. repec:osf:osfxxx:753gf_v1 is not listed on IDEAS
    10. Arnone, Massimo & Leogrande, Angelo, 2024. "The Sustainability Of The Factoring Chain In Europe In The Light Of The Integration Of Esg Factors," OSF Preprints 753gf, Center for Open Science.
    11. Zbigniew Korzeb & Paweł Niedziółka & Danuta Szpilko & Filippo Pietro, 2024. "ESG and climate-related risks versus traditional risks in commercial banking: A bibliometric and thematic review," Future Business Journal, Springer, vol. 10(1), pages 1-22, December.
    12. Elias Demetriades & Panagiotis Politsidis, 2025. "Bank lending to fossil fuel firms," Post-Print hal-04804492, HAL.
    13. Abdelsalam, Omneya & Azmi, Wajahat & Disli, Mustafa & Kowsalya, V., 2023. "Bank lending cyclicality and ESG activities: Global evidence," Finance Research Letters, Elsevier, vol. 58(PD).
    14. Boglarka Bianka Kovacs & Gábor Neszveda & Eszter Baranyai & Adam Zaremba, 2024. "ESG unpacked: Environmental, social, and governance pillars and the stock price reaction to the invasion of Ukraine," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(3), pages 755-777, September.
    15. Ni, Kejin & Zhang, Rui & Tan, Lei & Lai, Xiaobing, 2024. "How ESG enhances corporate competitiveness: Mechanisms and Evidence," Finance Research Letters, Elsevier, vol. 69(PB).
    16. Baek, Seungho & Kang, Moonsoo, 2025. "Does ESG enhance asset quality and funding cost management in banking diversification?," Finance Research Letters, Elsevier, vol. 73(C).
    17. Emilija Popovska & Marko Košak, 2025. "Stability of the euro area banking sector since the SSM implementation: deriving ABSI with ESG component included," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(3), pages 474-502, September.
    18. Demetriades, Elias & Politsidis, Panagiotis N., 2025. "Bank lending to fossil fuel firms," Journal of Financial Stability, Elsevier, vol. 76(C).
    19. Changjun Zheng & Md Abdul Mannan Khan & Changjun Zheng & Rabiul Islam & Md Mohiuddin Chowdhury & Md Mohiuddin Chowdhury, 2025. "Exploring the relationship between ESG performance and firm value in Chinese and US banks The moderating impact of environmental uncertainty and competitive advantage," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(1), pages 01-16, January.
    20. David L. Kelly & Christopher Paik, 2024. "Sustainable Banking and Credit Market Segmentation," CESifo Working Paper Series 11522, CESifo.

    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
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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