Corporate Social Responsibility and Bank Risk

31 Pages Posted: 1 Oct 2019 Last revised: 29 Oct 2021

See all articles by Florian Neitzert

Florian Neitzert

University of Cologne - Faculty of Management, Economics and Social Sciences

Matthias Petras

University of Cologne - Department of Banking; University of Cologne; University of Cologne - Faculty of Management, Economics and Social Sciences

Date Written: September 19, 2019

Abstract

The concept of sustainable banking has developed significantly in recent years. Previous research found that corporate social responsibility reduces firm risk, yet this empirical evidence refers almost exclusively to non-financial companies and it remains unclear whether the risk-mitigating effect stems from the environmental, social, or governance pillar. The paper aims to analyse the impact of corporate social responsibility activities on bank risk and to explore its determinants. Using a sample of 582 banks worldwide over the period from 2002 to 2018, we confirm a risk-reducing effect of the corporate social responsibility activity on an aggregated level. The decomposition of this effect suggests that environmental activities determine this risk mitigation. In contrast, social and governance activities do not show similarly unambiguous results. In this way, our analysis highlights the great importance of environmental aspects in banks' risk management.

Keywords: Bank Risk, Default Risk, Portfolio Risk, Sustainability Risk, CSR, ESG

JEL Classification: G21; G32; M14; Q56

Suggested Citation

Neitzert, Florian and Petras, Matthias, Corporate Social Responsibility and Bank Risk (September 19, 2019). Available at SSRN: https://ssrn.com/abstract=3456754 or http://dx.doi.org/10.2139/ssrn.3456754

Florian Neitzert

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Albertus Magnus Platz
Cologne, DE NRW 50923
Germany

Matthias Petras (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://www.bankseminar.uni-koeln.de/en/seminar/staff/staff/petras/

University of Cologne ( email )

Albertus Magnus Platz
Cologne, NRW 50923
Germany

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

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