What do we know about the relationship between banks’ risk measures and social-environmental sustainability transparency?

Abstract

Concerns regarding social and environmental issues have become a pervasive aspect of economic relationships, prompting banks' role in social-environmental sustainability to occupy a growing share in the economic debate. Nevertheless, what is the relationship between bank behavior and sustainable activities? This paper presents the relationship between the disclosure of social-environmental policies and bank risk tolerance using a newly developed Social-Environmental Transparency Index for financial institutions. Using a dynamic panel database analysis of the 42 largest Brazilian banks, which represent about 98 percent of the Brazilian financial system, we estimate the impact of risk-taking by banks on their social and environmental transparency. The results indicate that safer banks have greater social-environmental transparency, and banking social and environmental regulation is important in increasing the sector's transparency. Finally, social-environmental disclosure has a persistent effect. Thus, transparent banks tend to be more transparent over time.