Nexus between ESG reporting and financial performance in the banking sector

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Abstract

The study evaluates the environmental, social, and governance (ESG) reporting performance of public sector banks (PSBs) and private sector banks (PvtBs) in India. Additionally, it seeks to investigate the impact of ESG performance on the financial performance (FP) of 32 companies during the 2022 financial year. Data on ESG performance were gathered from CRISIL (formerly Credit Rating Information Services of India Limited) reports, while FP data were obtained from the companies’ annual reports. The assessment of FP utilized accounting and market-based measures, and empirical exploration was conducted using ordinary least square (OLS) regression. The Mann-Whitney U test and box plot were employed to evaluate significant variations in ESG performance between PSBs and PvtBs. The findings suggest that Indian banking companies prioritize governance and social aspects over environmental concerns (Kumar & Prakash, 2019) and highlight unequal ESG performance between PSBs and PvtBs. Furthermore, the study indicates that ESG performance significantly and positively impacts FP across accounting and market measures (Ersoy et al., 2022). The implications of these findings are pertinent to regulators and policymakers, emphasizing the importance of transparent and comprehensive ESG disclosure for informed decision-making and the fulfilment of societal responsibilities. The present study examining the nexus between ESG performance and FP is confined to selected banks for a single financial year due to limited access to reliable data.

Keywords: ESG Performance, Banking Sector, Financial Performance, Emerging Economy, CRISIL

Authors’ individual contribution: Conceptualization — P.D., A.K.B., and R.K.; Methodology — P.D., S.D., A.S., H.D., and R.K.; Software — P.D., B.S., and R.K.; Formal Analysis — P.D., S.D., E.C., and R.K.; Writing — Original Draft — P.D., A.K.B., A.S., and H.D.; Writing — Review & Editing — P.D., B.S., H.D., and R.K.; Visualization — P.D., A.S., H.D., and R.K.; Supervision — P.D., E.C., H.D., and R.K.

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

JEL Classification: E52, F64, G30, K32, O13, P48, Q56

Received: 23.05.2024
Accepted: 12.12.2024
Published online: 16.12.2024

How to cite this paper: Debnath, P., Bhuyan, A. K., Das, S., Saikia, B., Saha, A., Chakravarty, E., Debi, H., & Kanoo, R. (2024). Nexus between ESG reporting and financial performance in the banking sector. Corporate Law & Governance Review, 6(4), 103–116. https://doi.org/10.22495/clgrv6i4p10