Abstract
Researchers in developed countries argue that banks should be free to decide about their sustainability initiatives without the interference from regulators. However, researchers in developing countries tend to think differently. This study aimed to focus on this argument by examining the linkage between sustainability and financial performance (SFP) aided through regulatory policy guidelines. In doing so, a comparative study was conducted between 2012 and 2018 to compare the pre- and post-status of SFP due to implementation of policy measures. Environmental, social and governance (ESG) scores were calculated and related with financial performance (return on assets) through regression analysis. The sample data includes 30 private commercial banks (PCBs) in Bangladesh. The analysis of the data shows that during these years, the overall sustainability performance, i.e., environmental, social and governance scores of the banks increased by 33 percent. However, the transformation of this performance into better financial performance could not been established even when age and size were taken into account. The current turbulent state of the banking sector due to growing non-performing loan has been identified as the single most influential factor for this neutral result. Research findings suggest that policy guideline initiatives do have a positive impact on bank sustainability. However, exogenous factors, such as political interference, may appease, deviate and prolong its impact on financial performance. This work will enhance the understanding of academics and policy-makers about the feasibility and impact of the policy-led sustainability model in the banking sector, particularly in developing countries.
Highlights
The alignment of economic goals and sustainable development has become a worldwide problem
This study aimed to focus on this argument by examining the linkage between sustainability and financial performance (SFP) aided through regulatory policy guidelines
As far as the first objective is concerned, it was ob- was a social score since 2012, as there were served that individual environmental and govern- many non-performing loans in the banking sector ance risk scores went up by 6 percent and 25 percent (Khatun, 2018)
Summary
The alignment of economic goals and sustainable development has become a worldwide problem. A number of actors have been involved in mitigating the challenge towards the pathway of sustainable development. Against the backdrop of this issue, many policies and stances have been adopted across the world by endowing resources and investment in green and climate resilient policies (Volz, 2018). Finance sector has been designated as one of the most crucial actors in mitigating the growing challenge towards a green transformation. 2), Green Finance is defined as “...all forms of investment or lending that consider environmental effect and enhance environmental sustainability”.
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