Exploring environmental, social, and governance and bank performance in the Gulf Cooperation Council region

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Abstract

Corporate strategies today are shaped by the increased importance given by companies, investors, and regulators to environmental, social, and governance (ESG) activities. This paper empirically investigated the impact of ESG on the performance of banks in the Gulf Cooperation Council (GCC) region by collecting and analyzing the data of 29 banks located in the six GCC countries — namely the United Arab Emirates (UAE), Kuwait, Qatar, Oman, and Saudi Arabia. It studies data for the period 2010–2022 collected from the Refinitiv Eikon platform. Applying the ordinary least squares (OLS) and panel regression (fixed and random effect) techniques, it examines the impact of ESG on the performance of these banks. The significant Hausman test favored using the fixed effect results. The results suggest that a bank’s size positively influences its performance. The larger the bank the more diverse its ESG activities and the better its performance. Additionally, ESG and asset quality have a significant negative correlation to performance, implying a lower asset quality indicates higher loan loss provision and leads to lower financial performance. Finally, the results also suggest banks are overinvesting in ESG to comply with the latest standards set by investors and regulators.

Keywords: ESG, GCC, Performance, Panel Regression, Asset Quality, Loan Loss Provision

Authors’ individual contribution: Conceptualization — J.M., A.B.A., and B.A.K.; Methodology — A.B.A. and B.A.K.; Validation — A.B.A. and B.A.K.; Formal Analysis — A.B.A. and B.A.K.; Investigation — A.B.A. and B.A.K.; Resources — J.M.; Data Curation — J.M., A.B.A., and B.A.K.; Writing — Original Draft — J.M., A.B.A., and B.A.K.; Writing — Review & Editing — J.M., A.B.A., and B.A.K.; Supervision — A.B.A. and B.A.K.; Project Administration — A.B.A. and B.A.K.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C01, C23, G20, G30, G31, G32, G34, G38

Received: 01.05.2023
Accepted: 17.10.2023
Published online: 20.10.2023

How to cite this paper: Michael, J., Awad, A. B., & Khalaf, B. A. (2023). Exploring environmental, social, and governance and bank performance in the Gulf Cooperation Council region [Special issue]. Corporate Law & Governance Review, 5(2), 192–200. https://doi.org/10.22495/clgrv5i2sip6