Sustainability May Cost the Earth: Examining the Strategic and Financial Consequences of Banks' Sustainable Corporate Strategy

45 Pages Posted: 25 Aug 2008

See all articles by Les Coleman

Les Coleman

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Date Written: August, 24 2008

Abstract

Recently many companies have begun adopting a sustainable framework, particularly large firms with strong customer bases such as banks. Despite this interest, sustainability's contribution to value remains elusive.

Based on definitions in the literature, banks evidence a commitment to corporate sustainability when they sign the Equator Principles that require them to enforce best environmental and social practices in projects they finance. A sample of international banks (N=84) was developed comprising all listed signatories to the Principles and matched non-signatories; financial and operating data were compiled from Bankscope.

Cross-sectional analysis shows that signatories have a different mix of risks and strategies; have significantly lower profit margin and price-to-book ratio than non-signatories; and did not add value for shareholders over the recent medium term. Favoring sustainability - at least by banks signing the Equator Principles - does not add value as suggested by many proponents; and it actually worsens financial performance against several criteria.

Keywords: bank performance, corporate decision making, Equator Principles, sustainability

JEL Classification: M14

Suggested Citation

Coleman, Les, Sustainability May Cost the Earth: Examining the Strategic and Financial Consequences of Banks' Sustainable Corporate Strategy (August, 24 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1252523 or http://dx.doi.org/10.2139/ssrn.1252523

Les Coleman (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business & Economics
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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