ESG controversies and profitability in the European banking sector

Abstract

This paper empirically investigates the relationship between Environmental, Social, and Governance (ESG) Controversies and bank profitability. We analyze an unbalanced panel sample of European banks between 2015 and 2022, implementing the GMM-SYS version of the Arellano-Bond estimator for dynamic panels. The study results indicate that banks featuring more ESG controversies perform better in terms of Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin. This sheds light on the potentially opportunistic behavior of credit institutions, which appear to prioritize profitability over ESG Controversies.