The Effect of ESG Performance on Bank Liquidity Risk

Jiaze Liu and Jifei Xie ()
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Jiaze Liu: School of Management, Northeastern University at Qinhuangdao, Qinhuangdao 066004, China
Jifei Xie: School of Management, Northeastern University at Qinhuangdao, Qinhuangdao 066004, China

Sustainability, 2024, vol. 16, issue 12, 1-23

Abstract: In recent years, investors have increasingly focused on the environmental, social, and governance (ESG) performance of businesses, driven by the rising importance of social and environmental challenges. This trend highlights the critical role of ESG factors in the financial sector. This study leverages stakeholder theory, risk management theory, and ESG investment theory, utilising financial data and ESG scores from Chinese listed banks to comprehensively analyse ESG elements and examine their impact on the liquidity risk of commercial banks. The results show that: (1) Enhanced ESG performance can mitigate liquidity risk in commercial banks by reducing the proportion of non-performing loans and improving overall financial performance. (2) By standardising and implementing sustainable business practices, ESG elements can improve commercial banks’ liquidity management levels and lessen the incidence and effects of liquidity risk. As a result, it is critical to lower banks’ liquidity risk and support the long-term growth of commercial banks from five angles: information disclosure, differentiated reform, digital transformation, education and training, and international cooperation.

Keywords: ESG performance; liquidity risk; sustainable finance; financial performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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