ESG activity and bank lending during financial crises

Gamze Ozturk Danisman and Amine Tarazi

Journal of Financial Stability, 2024, vol. 70, issue C

Abstract: This paper explores how banks’ environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of European listed banks with available ESG scores from 2002 to 2020 and consider the global financial crisis of 2007–2009 and the European sovereign debt crisis of 2010–2012. We estimate a two-step system GMM dynamic panel data model and also address potential endogeneity with instrumental variable (IV) and difference-in-difference (DiD) estimations. We find that lending falls to a lesser extent for banks with higher ESG scores during crisis times. Our findings are robust to using alternative ESG rating providers. An investigation of the different potential channels shows that, during crises, banks more engaged in ESG activities are less affected in terms of credit risk, 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. A deeper investigation reveals that our findings mainly hold for banks focused on traditional lending and deposit activities and are essentially driven by the environmental pillar component of ESG scores and the global financial crisis of 2007–2009.

Keywords: Environmental Social Governance (ESG) scores; Bank Lending; Bank Risk; Environmental pillar; Financial Crisis; European banks (search for similar items in EconPapers)
JEL-codes: G01 G21 G30 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: ESG activity and bank lending during financial crises (2024)
Working Paper: ESG activity and bank lending during financial crises (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:70:y:2024:i:c:s1572308923001067

DOI: 10.1016/j.jfs.2023.101206

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