The impact of ESG score on financial performance and shareholder value of Nordic banks
Dumaru, Roshni (2025-05-05)
R. Dumaru
05.05.2025
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:oulu-202505053094
https://urn.fi/URN:NBN:fi:oulu-202505053094
Tiivistelmä
This study aims to examine the impact of ESG scores and its individual dimensions —Environmental, Social, and Governance— on the financial performance (measured by ROA and ROE) and shareholder value (measured by market capitalization) of Nordic commercial banks in last 10 years (2014 to 2023). The study covers a sample of observations of 62 European banks, incorporating both Nordic and non-Nordic institutions.
The association of ESG with profitability and shareholder value is investigated in the study using a fixed effect regression model. Findings reveal that overall impact of ESG scores on financial performance is not statistically significant. However, ESG actions have a favorable impact on market capitalization for non-Nordic banks, demonstrating that investors in these regions strongly favor sustainability. Further analysis of individual ESG dimensions shows that environmental factors positively impact profitability (ROA and ROE) in Nordic banks, highlighting the benefits of environmentally responsible banking practices. In contrast, social factors negatively affect ROE, suggesting that social initiatives, although aligned with ethical business practices, may introduce costs that outweigh short-term financial benefits.
In contrast, for non-Nordic banks, environmental initiatives reduce profitability whereas social and governance efforts positively impact both profitability and investor perception, suggesting that these banks may find it hard to translate ESG initiatives into financial gains.
These findings highlight the importance of regional context in ESG implementation, demonstrating that Nordic banks gain from significant social and environmental commitments, whereas it's quite opposite in the case of non-Nordic banks. The study adds to the growing literature on sustainable finance by elucidating banks, investors, and policymakers on the strategic implications of ESG investments.
The association of ESG with profitability and shareholder value is investigated in the study using a fixed effect regression model. Findings reveal that overall impact of ESG scores on financial performance is not statistically significant. However, ESG actions have a favorable impact on market capitalization for non-Nordic banks, demonstrating that investors in these regions strongly favor sustainability. Further analysis of individual ESG dimensions shows that environmental factors positively impact profitability (ROA and ROE) in Nordic banks, highlighting the benefits of environmentally responsible banking practices. In contrast, social factors negatively affect ROE, suggesting that social initiatives, although aligned with ethical business practices, may introduce costs that outweigh short-term financial benefits.
In contrast, for non-Nordic banks, environmental initiatives reduce profitability whereas social and governance efforts positively impact both profitability and investor perception, suggesting that these banks may find it hard to translate ESG initiatives into financial gains.
These findings highlight the importance of regional context in ESG implementation, demonstrating that Nordic banks gain from significant social and environmental commitments, whereas it's quite opposite in the case of non-Nordic banks. The study adds to the growing literature on sustainable finance by elucidating banks, investors, and policymakers on the strategic implications of ESG investments.
Kokoelmat
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