The impact of sustainable banking practices on bank stability

This study seeks to examine whether corporate environmental performance (CEP) and corporate social perfor-mance (CSP) affect stability of the banking industry. The topic is of much interest to researchers and policy makers considering the growing demand to integrate environmental and social practices into banking business model. Based on a panel dataset of 473 banks in 74 countries, this research finds that CEP is negatively related to bank stability as measured by non-performing loans (NPL). However, the impact is insignificant for small and large banks, as well as for banks in countries with low environmental scores. Furthermore, CSP does not appear to have a significant relationship with bank stability, but financial product safety, which is an aspect of CSP, does. The results are robust to a variety of econometric specifications and have significant policy implications for investors, bankers and regulators.

Automated summary

This study examines the impact of corporate environmental performance (CEP) and corporate social performance (CSP) on the stability of the banking industry. The research finds that CEP is negatively related to bank stability, but the impact is not significant for small banks, large banks, and banks in countries with low environmental scores. Furthermore, CSP does not appear to have a significant relationship with bank stability, except for the aspect of financial product safety. The results are robust to various econometric specifications and have important policy implications for investors, bankers, and regulators.