Abstract
There has been long-standing debate over whether or not firms gain economic competiveness from reducing their impact on the environment. Although ample literature is available on association between environmental performance and financial performance across various sectors, little empirical evidence is available in context of Indian banking sector. This research aims to analyze whether there is any significant relationship between environmental performance and financial performance of banks operating in India for a period 2013-14 to 2017-18. Secondary data has been collected for a sample of 83 banks operating in India. Content analysis was applied to extract information about environmental performance disclosed by sample banks followed by construction of environmental disclosure score index. Hierarchical multiple regression was applied to analyze relationship between environmental performance and financial performance after controlling for effects of size, financial leverage and capital intensity. Results exhibit no significant relationship between environmental performance and financial performance of banks operating in India. Findings of this research are expected to provide insight to users and readers of financial statements to have better understanding about the environmental practices carried out by banks. It would also contribute significantly towards decision making for policy makers in Indian banking sector to establish mandatory environmental legislations for reporting on environmental practices in order to improve non financial disclosure and financial performance in Indian banking sector.
Highlights
Rising environmental significance worldwide has witnessed a paradigm change of business firms from conventional financial expectations to sustainable development
Research relies on secondary data gathered through published and audited annual financial reports collected from official website of respective banks and Reserve Bank of India, Independent Auditors Reports, Business Responsibility Reports according to National Voluntary Guidelines/Corporate Social Responsibility Reports/Standalone Sustainability Reports/ Global Responsibility Initiative Reports collected from official website of respective banks
Since banks play an intermediary role in an economy by financing various sectors of an economy, climate change and related environmental risks arises a need for banks to measure environmental performance in view of their environmental sustainability (Bimha & Nhamo, 2017)
Summary
Rising environmental significance worldwide has witnessed a paradigm change of business firms from conventional financial expectations to sustainable development. World Commission on Environment and Development of the United Nations defines sustainable development as “development that meets the needs of present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987). One of the serious and imperative concern that poses gravest of danger to the environment and subsequently to existence on this planet is climate change caused due to emission of green house gases, inefficient management of e-waste, deforestation etc. Inefficient consumption of scarce resources by the companies has resulted in degradation of environment. Scant resources are being exploited for dealing with environment related issues which could have been utilized for development of nation and economy (Malarvizhi & Matta, 2016). Considering the critical transitional role banks occupy in the financial system between the borrowers and lenders, there is an utmost
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