Does sustainability make banks more cost efficient?

Abstract

The Dow Jones Sustainability Index (DJSI) was the world's first index to track corporate sustainability. We compared 36 banks listed on the DJSI with 36 non-DJSI banks in 15 countries from 2006 to 2015, using stochastic frontier analysis (SFA) and the stochastic metafrontier approach (SMF) and measuring the technology gap ratio (TGR) and metafrontier cost efficiency (MCE). Our results indicate that DJSI banks have higher cost efficiency than non-DJSI banks, although DJSI banks experienced greater fluctuation during the 2008 financial crisis. DJSI banks also outperform non-DJSI banks in TGR and MCE.