The Sustainability Performance of Chinese Banks: Institutional Impact

Abstract

In 2006 China implemented the green credit policy that demands from banks to integrate sustainability considerations into their lending and investment processes. The goals of the policy are to incentivize the financial sector to finance the transformation into a greener economy and to create financial benefits for financial institutions through risk mitigation. In our study we used institutional theory as our theoretical background to test whether the green credit policy makes Chinese banks greener and has a positive effect on the financial sustainability of the banks. In particular, we analyzed whether institutional pressure has an impact on both the sustainability performance and the financial performance of Chinese banks. Using panel regression and Granger causality our results suggest that there is a correlation between financial performance indicators and sustainability performance in Chinese banks and that both are influenced by the green credit policy. We concluded that institutional pressure can be an effective way to increase both financial and sustainability performance in the financial sector. Furthermore, our research contributed to institutional theory by explaining the connection between institutional pressure, financial, and sustainability performance for financial sector regulations that address the sustainability of the sector.