Do ESG factors enhance bank profitability? Global panel evidence
-
DOIhttp://dx.doi.org/10.21511/bbs.20(3).2025.13
-
Article InfoVolume 20 2025, Issue #3, pp. 173-190
- 8 Views
-
0 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Type of the article: Research Article
Abstract
The growing focus of the IMF, World Bank, OECD, and European Commission on aligning finance with the Sustainable Development Goals (SDGs) raises the question of whether sustainability enhances banking sector profitability. This study aims to assess the impact of SDG performance on bank profitability, measured by return on assets (ROA), return on equity (ROE), and interest margin to gross income, controlling for GDP growth and inflation. The analysis uses an unbalanced panel of 143 countries over 2000–2024 (more than 2,100 country-year observations), applying fixed effects, random effects, and multilevel models with robust covariance estimators. The results show that the SDG Index Score has a weak and inconsistent effect on profitability. It is weakly positive for ROA (β = 0.125, p = 0.085) and marginally positive for interest margins (β = 0.151, p = 0.019), but becomes insignificant under robust specifications. For ROE, the SDG Index turns significantly negative in the random effects model (β = –0.119, p = 0.001), suggesting that higher SDG performance may be associated with lower equity returns. In contrast, the macroeconomic controls are robust across all models: GDP growth increases ROA (β = 0.107, p < 0.001) and ROE (β = 0.108, p < 0.001) but reduces interest margins (β = –0.061, p < 0.001), while inflation consistently raises profitability across all indicators. Regional patterns further indicate lower profitability in OECD and Western Europe and higher interest margins in East and South Asia, Latin America, and MENA.
- Keywords
-
JEL Classification (Paper profile tab)G21, G32, Q56, C33
-
References59
-
Tables11
-
Figures0
-
- Table 1. Descriptive statistics of main variables (2001–2024)
- Table 2. FE and RE estimation results with the Hausman test
- Table 3. Robust fixed effects estimations with alternative covariance structures
- Table 4. Multilevel model (countries nested in regions) estimation results
- Table 5. RE model with regional dummy variables
- Table 6. FE vs. RE estimations for ROE
- Table 7. Robust fixed effects estimations for ROE
- Table 8. Random effects estimation for ROE with regional controls
- Table 9. FE vs. RE estimations for interest margin to gross income (y3)
- Table 10. Robust fixed effects estimations for interest margin to gross income (y3)
- Table 11. Random Effects estimation for interest margin to gross income (y3) with regional controls
-
- Adhikari, G. M., Sapkota, N., Parajuli, D., & Bhattarai, G. (2025). Impact of Green Banking Practices in Enhancing Customer Loyalty: Insights from Banking Sector Customers. Financial Markets, Institutions and Risks, 9(1), 195-215.
- Bagirzadeh, M., Churikanova, O., Celika, M., Hurochkina, V., Petrushenko, Y. & Kyslytska, V. (2025). Influence of Foreign Direct Investment on Sustainable Development. Financial Markets, Institutions and Risks, 9(2), 35-65.
- Budhathoki, P. B., Karki, M., Lama, P. B., & Chataut, M. K. (2025). Financial Access and Its Socioeconomic Dilemmas: Assessing the Impact on Bank Performance. SocioEconomic Challenges, 9(1), 58-69.
- Dadkhah, M., Nedungadi, P., Raman, R., & Dávid, L. D. (2024). Emerging and disruptive technologies and the sustainable development goals: A state of art and research agenda. Equilibrium. Quarterly Journal of Economics and Economic Policy, 19(1), 13-21.
- Dirma, V., Neverauskienė, L. O., Tvaronavičienė, M., Danilevičienė, I., & Tamošiūnienė, R. (2024). The impact of renewable energy development on economic growth. Energies, 17(24), 6328.
- Dobrovolska, O., & Kolomiiets, S. (2024). The Impact of Digitalisation on Social Determinants of Public Health. Health Economics and Management Review, 5(3), 128-142.
- European Commission (EC). (2021). Strategy for financing the transition to a sustainable economy.
- Filipava, L., & Murshudli, F. (2023). The Development of the Global Green Finance Market: The Role of Banks and Non-banking Institutional Investors. In Naifar, N., Elsayed, A. (Eds.), Green Finance Instruments, FinTech, and Investment Strategies: Sustainable Portfolio Management in the Post-COVID Era (pp. 27-46). Cham: Springer International Publishing.
- Firstová, J., & Vysochyna, A. (2024). Optimisation of socio-economic, environmental and public health determinants of national security for post-pandemic recovery. Health Economics and Management Review, 5(1), 67-79.
- 10. Hedau, A., & Malla, V. (2024). Analyzing the Impact of Government Policy Measures on the Return on Equity. SocioEconomic Challenges, 8(2), 157-169.
- 11. Hermansyah, F. I., Anwar, A. I., Aksah, N. M., Ulumuddin, I., Jannah, R. T., Amaliah, N. R., & Arifin, A. H. (2025). Does poor ESG performance still drive profitability? New evidence from Indonesia’s SRI-KEHATI listed firms. Investment Management and Financial Innovations, 22(3), 14-26.
- International Monetary Fund (IMF). (2023). Global Financial Stability Report: Financial and Climate Policies for a High-Interest-Rate Era. Washington, DC.
- International Monetary Fund (IMF). (n.d.). Data Home.
- Kubalek, J., Erben, E., & Kudej, M. (2024). Impact of the environmental ESG pillar on firm sustainability: Empirical research in the V4 countries. Journal of International Studies, 17(3), 148-163.
- Kubatko, O., Kuzior, A., Kovalov, B., Rekunenko, I., Stepanenko, Y., & Sulym, V. (2024). Economic, institutional and environmental drivers of foreign trade. International Journal of Environment and Sustainable Development, 23(4), 480-499.
- Kurniasari, F., & Dwi Lestari, E. (2025). Does corporate governance matter in elucidating factors that drive profitability in the insurance industry? Insurance Markets and Companies, 16(1), 90-102.
- Kuzior, O., Kostenko, A., Sotnyk, I., Yulija, C., Tuliakov, O., & Podmanicka, M. (2023). Socioeconomic sustainability and the solidarity economy formation under the war conditions in Ukraine. Financial and Credit Activity Problems of Theory and Practice, 5(52), 256-267.
- Liu, Y., McDowell, S., Xue, C., & Zhang, J. (2024). Environmental, social, and governance performance: The role of Chinese employee stock ownership plans. Environmental Economics, 15(2), 132-148.
- Loan, B. T. T., Anh, T. T. L., & Hoang, T. (2024). ESG disclosure and financial performance: Empirical study of Vietnamese commercial banks. Banks and Bank Systems, 19(1), 208-220.
- Lyeonov, S., Draskovic, V., Kubaščikova, Z., & Fenyves, V. (2024). Artificial intelligence and machine learning in combating illegal financial operations: Bibliometric analysis. Human Technology, 20(2), 325-360.
- Makarenko, I., & Vorontsova, A. (Eds). (2024). Sustainability benchmarks and progress: EU-Ukraine experience. The Academic Research and Publishing UG (AR&P), Hamburg, Germany.
- Matuszewska-Pierzynka, A., & Pieloch-Babiarz, A. (2025). Effect of corporate sustainability performance on the changes in payout policy of the top global companies. Equilibrium. Quarterly Journal of Economics and Economic Policy, 20(1), 357-388.
- Megits, N., Aliyev, S., Pustovhar, S., Bielialov, T., & Prokopenko, O. (2022). The «Five-Helix» Model as an effective way to develop business in Industry 4.0 of selected countries. Journal of Eastern European and Central Asian Research, 9(2), 357-368.
- Moolkham, M. (2025). How do firm characteristics amplify the importance of ESG ratings for investors? Economics and Sociology, 18(1), 90-115.
- Msomi, T. S. (2025). The nexus of ESG performance and equity financing: Evidence from JSE-listed non-financial firms in South Africa. Investment Management and Financial Innovations, 22(3), 92-105.
- Muazaroh, Lestari, W., & Purnama Sari, L. (2025). The role of gender diversity, board size, and ESG disclosure in improving performance and managing risks. Problems and Perspectives in Management, 23(1), 288-298.
- Mursalov, M., Niemi, O., Kolomiiets, S., & Trofimenko, D. (2025). Determinants of Financial Stability in Banks: The Impact of Key Regulatory Financial Indicators. Financial Markets, Institutions and Risks, 9(2), 123-134.
- Mursalov, M., Yarovenko, H., & Vasilyeva, T. (2023). Entrepreneurial Ecosystem and Digitalization: Relationship and Synergy of Development. In Strielkowski, W. (Ed.), Leadership, Entrepreneurship and Sustainable Development Post COVID-19. NILBEC 2022. Springer Proceedings in Business and Economics. Cham: Springer.
- Murshudli F., & Loguinov B. (2020). Transnationalization and Digitalization of Banks as Means of Evolving Efficiency Not Accountability. Economic and Social Development (Book of Proceedings, Vol. 1/4). 55th International Scientific Conference on Economic and Social Development (pp. 798-809). Baku: VDEA – UNEC.
- Murshudli, F. F. (2023). Green Banking for Sustainable Development. Foresight and STI Governance, 17(2), 82-94.
- Nathania, R., & Ekawati, E. (2024). Banking on ESG: How ownership influences financial outcomes in 5-ASEAN countries. Banks and Bank Systems, 19(3), 121-132.
- Noor, A.S., Alam, S., Nohong, M., & Sobarsyah, M. (2024). Investigating the impact of corporate governance and investment decisions on financial performance and firm value in insurance and banking sectors. Insurance Markets and Companies, 15(2), 122-132.
- Ntshangase, B. A., Makole, K. R., & Msosa, S. K. (2024). Overcoming the Socio-Economic Challenges to Good Governance: Streamlining Cooperative Governance Model. SocioEconomic Challenges, 8(4), 19-30.
- OECD. (2020), OECD Business and Finance Outlook 2020: Sustainable and Resilient Finance. Paris: OECD Publishing.
- Pimenowa, O., Pimenov, S., Fyliuk, H., Sitnicki, M. W., Kolosha, V., & Kurinskyi, D. (2023). Sustainable Business Model of Modern Enterprises in Conditions of Uncertainty and Turbulence. Sustainability, 15(3), 2654.
- Prokopenko, O., Järvis, M., Shahnazaryan, N., Chechel, A., Sapiński, A., & Batsenko, L. (2025). Bridging Risk Ethics and Sustainability: A Data-Driven Study of Ethical Leadership Practices in Risky Business Environments. Business Ethics and Leadership, 9(2), 211-224.
- Prokopenko, O., Kurbatova, T., Bashynska, I., & Pysmenna, U. (2023a). Improving the Feed-in Tariff Policy for Renewable Energy Promotion in Ukraine’s Households. Energies, 16(19), 6773.
- Prokopenko, O., Kurbatova, T., Khalilova, M., Zerkal, A., Prause, G., Binda, J., Berdiyorov, T., Klapkiv, Y., Sanetra-Półgrabi, S., & Komarnitskyi, I. (2023b). Impact of Investments and R&D Costs in Renewable Energy Technologies on Companies’ Profitability Indicators: Assessment and Forecast. Energies, 16(3), 1021.
- Ruziwa, R. M., Mvunabandi, J. D., & Nomlala, B. C. (2025). Audit committee characteristics and environmental, social, and governance reporting quality: An analysis of top 100 JSE-listed corporations. Accounting and Financial Control, 6(1), 38-52.
- Rybalchenko, S., Lukianykhina, O., Alamanova, C., Saienko, V., & Sunduk, T. (2022). Anti-crisis management of banking institutions: current problems and prospects for improvement. Financial and Credit Activity-Problems of Theory and Practice, 5(46), 29-39.
- Sachs, J.D., Lafortune, G., Fuller, G., & Iablonovski, G. (2025). Sustainable Development Report 2025. Financing Sustainable Development to 2030 and Mid-Century. Paris: SDSN; Dublin: Dublin University Press.
- Saienko, V., Skomorovskyi, A., Iermak, V., Sereda, O., & Bulavynets, O. (2025). The role of financial inclusion in driving economic growth. African Journal of Applied Research, 11(1), 472-483.
- Serhane, S. (2025). The Multifaceted Nature of Corporate Social Responsibility: Exploring the Economic, Legal, Ethical, and Philanthropic Dimensions. Business Ethics and Leadership, 9(1), 230-239.
- Serpeninova, Y., Partila, P., Raboshuk, A., Krukhmal, O., & Nezhyd, Y. (2025). Transparency in Human Capital Disclosure in Non-Financial Reporting: Towards Ethical Governance and Corporate Social Responsibility in Banking. Business Ethics and Leadership, 9(2), 120-129.
- Serpeninova, Y., Lehenchuk, S., Zdyrko, N., Zakharov, D., & Podolianchuk, O. (2024). Revealing the contribution of corporate sustainability practices to financial performance: Case of BIST Sustainability 25 Index companies. Environmental Economics, 15(1), 118-129.
- Sharma, P., Agrawal, G., T. Sunil Kumar, C., Kumar, M., & Kalyani, S. (2025). Impact of environmental, social, and governance factors on the price discovery process in the Indian stock market. Investment Management and Financial Innovations, 22(2), 268-278.
- Standal, K., Leiren, M. D., Alonso, I., Azevedo, I., Kudrenickis, I., Maleki-Dizaji, P., Laes, E., Di Nucci, M. R., & Krug, M. (2023). Can renewable energy communities enable a just energy transition? Exploring alignment between stakeholder motivations and needs and EU policy in Latvia, Norway, Portugal and Spain. Energy Research & Social Science, 106, 103326.
- Starchenko, L., Lyeonov, S., Vasylieva, T., Pimonenko, T., & Lyulyov, O. (2021). Environmental management and green brand for sustainable entrepreneurship. E3S Web of Conferences, 234, 00015.
- Strouhal, J., Horák, J., Resik, A., Gurvitš-Suits, N., & Kadak, T. (2025). Stakeholders’ perceptions on ESG reporting: On the case of Czechia and Estonia. Journal of International Studies, 18(2), 75-93.
- Tessema, D. B. (2025). Pillars of Organizational Transformation and Sustainability: Leadership, Learning, Culture, and Knowledge Management as Key Success Factors in Environmental Public Health. Health Economics and Management Review, 6(1), 1-22.
- Vakulenko, I., & Rekunenko, I. (2025). Clean energy projects for European integration and cooperation. The Academic Research and Publishing UG (i. G.), Hamburg, Germany, 185 p.
- Vasa, L., Kubatko, O., Sotnyk, I., Piven, V., Trypolska, G., & Pysmenna, U. (2024). Economic and environmental drivers of renewable energy transition in the EU. Environmental Economics, 15(2), 232-245.
- Vasilyeva, T., Yarovenko, H., Babenko, D., Kalicheva, N., Frolova, N., & Shylovtseva, N. (2022). The barycentric model of determining the sustainable growth determinants. Heritage and Sustainable Development, 4(2), 145-164.
- Vasylieva, T., Leonov, S., & Lasukova, A. (2014). Evaluation of the banks corporate social responsibility concept implementation level. Economic Annals-XXI, 137, 1-2(1), 89-93.
- World Bank. (2022). World Development Report 2022: Finance for an Equitable Recovery. Washington, DC: World Bank.
- World Bank. (n.d.). World Bank Open Data.
- Yanto, H., Hajawiyah, A., & Baroroh, N. (2025). The reciprocal effect of environmental, social, and governance (ESG) practices and tax aggressiveness in Indonesian and Malaysian companies. Problems and Perspectives in Management, 23(1), 339-351.
- Yarovenko, H., Kuzior, A., Norek, T., & Lopatka, A. (2024). The future of artificial intelligence: Fear, hope or indifference? Human Technology, 20(3), 611-639.
- Zatonatskiy, D., Leonov, S., Cieśliński, W., & Vasa, L. (2024). Determinants of global migration: The impact of ESG investments and foreign direct investment. Economics and Sociology, 17(1), 215-235.