Balancing Bank Profits With Sustainable Development Goals: Examining the Pivotal Role of Financial Stability

Nguyen Quoc Huy and Le Quoc Dinh

Sustainable Development, 2025, vol. 33, issue S1, 1182-1199

Abstract: Climate change is a global responsibility. To combat the destructive “brown economy,” sustainable development (SD) has become essential for all economies. Financial intermediaries are now pressured to support UN SD goals by divesting from high CO2‐emission projects and redirecting funds to SD activities. This shift creates a potential trade‐off between achieving SD goals and maintaining bank profitability. While existing literature predominantly views this relationship as linear, this study addresses the potential non‐linear dynamics by incorporating financial stability as a threshold variable. Using data from 60 countries between 2000 and 2020, the study employs threshold regression (PTR) and Bayesian regression methods. PTR results identify two thresholds, indicating a nonlinear relationship between SD and ROA when using Z‐score as the threshold variable, classifying countries into low financial stability (LFSs), medium financial stability (MFSs), and high financial stability (HFSs). Bayesian regression findings align with PTR, revealing that, in countries with high financial stability, investing in SD projects and activities yields high returns for commercial banks, while countries with low or medium financial stability do not see the same benefits. The study concludes with policy recommendations for the three country groups based on these findings.

Date: 2025
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https://doi.org/10.1002/sd.70057

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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:33:y:2025:i:s1:p:1182-1199

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