AN EMPIRICAL EXAMINATION OF BANKS IN THE ASIAPACIFIC: UNRAVELING THE NEXUS BETWEEN ESG, PROFITABILITY, AND STABILITY

Abstract

Banks' ESG issues are gaining traction and public attention following the Paris Agreement 2015. As a result, many researchers are currently examining the influence of ESG pillar practices on banks' financial performance and stability. However, these results seem far from conclusive. Therefore, continuous studies need to be carried out. The objective of this research is to investigate the impact of ESG initiatives implemented by banks on their profitability (ROA, ROE, and Tobin's Q) and financial stability (Z-Score(CAR) and Z-Score(EQTA)). Using a set of unbalanced panel data of 178 commercial banks from 12 countries in the Asia Pacific region, spanning from 2013 to 2022, this study performs panel regression analysis to explore the ESG and bank profitability and bank stability links. Our research findings support stakeholder theory and the resource-based view (RBV) as explanatory frameworks for connecting ESG pillars and bank profitability and financial stability. These include banks' environmental, social, and governance measures enhancing profitability and stability. The results are robust across different models and settings (e.g., ESG pillars vs. dimensions, different financial performance and financial stability proxies, and lagged ESG pillars and dimensions in the model).