Abstract
Financial intermediaries are essential for advancing circular and blue economies by providing critical financial support to sustainable ventures. However, sustainability efforts may lack persistence without appropriate incentives. This paper aims to investigate the impact of lending to blue and sustainable firms, as well as increased digitalization, on the performance of the banking sector. Using a comprehensive sample of banks from twenty-seven member states of the European Union over 11 years, our findings reveal a positive association between banking performance and blue lending, sustainable credit, and digitalization. Specifically, we observe that an increase in banks' financing to blue and other sustainable firms, along with higher investments in digitalization, leads to a rise in the net interest margin. Similarly, the solvency risk will be reduced when the exposure to sustainable firms is higher. Likewise, investment in digitalization will lower banking risks. These empirical results manifest significant implications for sustainable development, blue economy firms, and the banking sector at large.
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