Bank managers are facing increasing pressure to adopt sustainable finance models that
address stakeholders' diverse interests. It is important to understand how ESG strategies
relate to corporate financial performance (CFP) to facilitate the adoption by bank leaders.
Grounded in the triple bottom line and stakeholder theories, the purpose of this ex-post
facto study was to examine the relationship between sustainability practices and the CFP
of banks within the contingency of firm size. Secondary data on 226 global banks were
collected from the Sustainalytics and FitchConnect databases. The results of the
moderated multiple regression analysis indicated the two full models comprising four
predictor variables (ESG risk ratings and firm size) were significant in explaining the
variations in CFP, R
2
= .142, F(7, 218) = 5.155, p < .05 and R
2
= .140, F(7, 218) = 5.086,
p < .05. In the first model, the relationships between the banks' ESG risk management
and CFP were nonsignificant. The interaction effect of bank size and governance risk
management was significant (p = .015, ß = -3.664). In the second model, the linkage
between social risk management and CFP was significant (p = .034, ß = -.028). The (a)
connections between environmental and governance risk management and CFP and (b)
interaction impacts of bank size and ESG risk management were nonsignificant. The key
recommendations are for bank leaders to clarify the financial and nonfinancial
motivations for adopting sustainable strategies and apply appropriate benchmarks to
evaluate the outcomes. The implications for positive social change include the potential
for banks to foster financial inclusion, reduce social inequalities, positively influence
other players' sustainability behaviors, and catalyze the transition to low-carbon
economies. |