Banks’ Business Models and ESG Performance
33 Pages Posted: 27 Jun 2024
Abstract
In this paper, we study the relationship between banks’ business models and the Environmental, Social and Governance (ESG) performance. We use a threshold regression model (Hansen, 1999) to identify an optimal threshold level in the business models of a sample of 80 European listed banks during 2006 - 2021 time period. We find a significant and positive relationship between the ESG score when the level of capital and stock of deposits are above a certain threshold, highlighting how greater attention to sustainability policies is associated with banks that rely more on deposits as a source of funding. We also find that the ESG score is sensitive to a lower values of income structure, confirming that a greater focus on ESG risks is more in line with banks characterized by traditional activities.
Keywords: Business models, ESG rating, Risk taking, Banks.
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