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Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

Chiaramonte, Laura and Dreassi, Alberto and Girardone, Claudia and Piserà, Stefano (2021) 'Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe.' The European Journal of Finance. pp. 1-39. ISSN 1351-847X

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Abstract

This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information.

Item Type: Article
Uncontrolled Keywords: Corporate social responsibility (CSR); environmental social governance (ESG) scores; non-financial reporting; European banking; bank stability; financial crisis
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 23 Sep 2021 12:36
Last Modified: 06 Jan 2022 14:25
URI: http://repository.essex.ac.uk/id/eprint/30810

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