Impact of ESG on Corporate Financial Performance in the European banking sector

Dissertation presented as the partial requirement for obtaining a Master's degree in Statistics and Information Management, specialization in Risk Analysis and Management ; The purpose of this thesis is to investigate the impact of ESG (Environmental, Social, Governance) factors, both collectively and individually, on Corporate Financial Performance (CFP) in the European banking sector. It aims to determine whether adopting ESG strategies offers financial advantages. Sustainability has become a highly debated topic over the past decade, with increasing public pressure pushing companies to adopt ESG practices. Today, a successful bank is one that combines strong financial performance with a commitment to environmental and social responsibilities. This study analyzed twenty-nine papers to understand the current state of research on this topic. Econometric models, specifically panel regression models, were used to analyze the data, with return on assets (ROA) and return on equity (ROE) serving as the dependent variables. The models also included control variables with specific information for each bank, macroeconomic data from different European countries, and the variables of interest. The results were mixed: the overall ESG score, the combined ESG score (ESGC), and the Governance pillar positively impacted both ROA and ROE. The Social pillar had no impact on ROA but showed a significant positive impact on ROE, while the Environmental pillar showed no relation to either ROA or ROE. Overall, these findings suggest that adopting ESG practices can be advantageous for a bank’s financial performance, alongside other benefits.