ESG and systemic risk. Issue 27 (9th June 2023)

• Record Type: Journal Article
• Authors: Aevoae, George Marian; Andrieș, Alin Marius; Ongena, Steven; Sprincean, Nicu
• Is Part Of: Applied economics. Volume 55:Issue 27(2023)
• Page Start: 3085
• Page End: 3109
• Publication Date: 2023-06-09
• Subjects: Systemic risk -- financial stability -- Corporate Social Responsibility (CSR) -- environmental -- Social and Governance (ESG) scores; G01 -- G21 -- M14; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2022.2108752
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: How do changes in Environmental, Social and Governance (ESG) scores influence banks' systemic risk contribution? Using a dynamic panel model, we document a beneficial impact of the ESG Combined Score and Governance pillar on banks' contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007–2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank-specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. The results are robust to alternative measures of systemic risk, both contribution and exposure, as well as when estimating a static model. Our findings stress the importance of integrating banks' ESG disclosure into regulatory authorities' supervisory mechanisms as qualitative information.