Do the ESG Factors Affect Bank Insolvency? A Study Applied to Spanish Credit Cooperatives (Cajas Rurales) Between 2010 and 2015

Antonio Madera Pozo () and Natalia Cassinello Plaza ()
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Antonio Madera Pozo: Ethifinance Ratings
Natalia Cassinello Plaza: Universidad Pontificia Comillas - ICADE

A chapter in Corporate Social Responsibility in a Dynamic Global Environment, 2023, pp 235-246 from Springer

Abstract: Abstract To date, there has been growing awareness of the need to consider ESG (environmental, social, and governance) risks in the valuation of investments, not only because of the greater social demand for an inclusive economic growth for future generations but also because there is empirical evidence that shows a positive relationship between profitability and ESG criteria. The recent works published by the Committee of Experts designated by the European Commission (highlighting the publication of the taxonomy on sustainable finance), in addition to the adoption of the principles of sustainable banking or the recommendations of the central banks, make us think that ESG principles will be factors to consider in the definition of future capital requirements of the financial sector although, previously, it becomes necessary to quantify the relationship between ESG risks and probability of default. We have observed that up-to-date scientific publications in this area are scarce and, most of them, are focused mainly in the corporate segment. To fill this lack, we have resorted to the specific case of the Spanish rural credit unions (credit cooperatives) where, though a dependent variable that takes into account the insolvency of the entity (following Madera, Análisis de la sostenibilidad financiera de las cajas rurales a través de modelos logit y regresión de cox. Propuesta de un indicador sintético de salud financiera (Doctoral dissertation), 2017) and several explanatory variables that measure ESG risks that directly affect each entity, we have quantified this relation. The univariate analysis, the t-test of equality of means, and the logit model show that ESG variables related to equality between men and women, efficiency in the use of resources, salaries per employee, ATM network accessibility, and training expenses for employees have been significant. On the other hand, equality within the board of director has not been significant. In fact, our logit model assigns greater probabilities of default to the credit cooperatives that make a worse management of ESG risks that affect them, with a high explanatory power. The limitations of our model are based on the availability of information, since we have only had access to historical public reports that limit the number of explanatory variables. However, we believe that our research constitutes a first empirical demonstration that those companies, in this case credit cooperatives, which actively manage ESG risks, present a lower probability of insolvency isolating financial aspects.

Keywords: ESG; Insolvency risk management; Logit analysis; Credit cooperatives (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:csrchp:978-3-031-24647-0_12

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DOI: 10.1007/978-3-031-24647-0_12

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