Self-regulation for responsible banking and ESG disclosure scores: Is there a link?

Abstract

Banks play a crucial role in sustainable development, an area increasingly governed by self-regulation. This study examines whether banks that commit to self-regulation by adopting the Principles for Responsible Banking (PRB) exhibit enhanced Environment, Social, and Governance (ESG) performance. Utilizing Bloomberg ratings, we find that PRB adopters consistently show higher ESG scores than non-adopters, both before and after adoption. This suggests that a commitment to self-regulation serves as a reliable signal of responsible banking practices. Notably, the superior performance of PRB adopters relative to non-adopters is primarily driven by a strong pre-adoption commitment to transparency on ESG issues. We discuss possible explanations for this trend, including the role of early adopters in advancing industry-wide standards. Additionally, our findings reveal a negative association between regulatory quality and ESG scores, implying that banks may leverage ESG disclosures to mitigate information asymmetries in weaker institutional environments.