Are ESG scores driven by financial information? Evidence from European banks
Abstract
In recent years, investors' increasing focus on sustainable investments and the sustainability orientation of companies has led to parallel growth in the market for environmental, social and governance (ESG) performance and ESG rating agencies. However, even though ESG rating agencies have become very influential institutions, the literature has found that ESG performance ratings provided by different agencies often differ from each other. This causes consequences that should be considered, such as complex evaluation of companies' ESG performance and uncertainty in ESG investment decisions. Therefore, it is necessary to identify which determinants influence ESG performance. This study aims to identify the internal determinants of an ESG score using bank-specific balance sheet indicators such as capital and risk ratios. The analysis focuses on the European banking sector from 2018 to 2022. Banks mainly foster the transition to a more inclusive and sustainable economy. Moreover, after the recent financial crises, banks have increased their social responsibility practices, strengthening their credibility, trust and reputation. Generalised estimating equations with standard error robust to heteroscedasticity were used. The results reveal that the factors that most influence the ESG score provided by ESG rating agencies are bank size and liquidity risk exposure. The larger the size of the bank and the lower the exposure to liquidity risk, the higher the ESG score assigned.
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Author's Biography
Luana Serino is Assistant Professor of Finance in the Department of Economics and Management at Università Telematica Pegaso. She earned a PhD in entrepreneurship and innovation at the University of Campania L. Vanvitelli. She is skilled in behavioural finance, corporate finance and credit risk. She has authored national and international works on the financial technology in the banking system, the financial constraints on women-led businesses and credit risk assessment. Her research topics include the role of information in the credit relationship, banking system analysis, the gender problem in credit access and financial innovation. She is a member of ADEIMF (Italian Association of University Teachers in Financial Intermediaries and Markets) and of AIDEA (Italian Academy of Business Administration and Management).
Alessia Spignese is a PhD student at University of Campania L. Vanvitelli. In 2022, she received her undergraduate degree in economics, finance and markets from the University of Campania L. Vanvitelli. Her expertise is in corporate finance. Her research topics include cryptocurrencies, digital innovation and the role of FinTech services in the banking system.
Francesco Campanella is Full Professor in Corporate Finance at University of Campania L. Vanvitelli. In 2005, he received a PhD in entrepreneurship and innovation from Second University of Naples. He teaches corporate finance and credit risk at University of Campania L. Vanvitelli. He is the author of numerous empirical works about the evolution of the banking–industry relationship, the regulatory framework of Basel Accords, risk assessment and the impact of digital innovation on the structure of banks. He is a member of ADEIMF (Italian Association of University Teachers in Financial Intermediaries and Markets) and of AIDEA (Italian Academy of Business Administration and Management).
Citation
Serino, Luana, Spignese, Alessia and Campanella, Francesco (2024, October 1). Are ESG scores driven by financial information? Evidence from European banks. In the Journal of Risk Management in Financial Institutions, Volume 17, Issue 4. https://doi.org/10.69554/LYCT1993.
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