PTDoes sustainability pay off for a bank?
Banks lend the money that moves the economy, and they are pressed to adopt environmental, social and governance (ESG) practices. But does that raise or lower their profit? The thesis reviewed 40 studies and followed hundreds of listed banks from more than 50 countries, from 2014 to 2023. Explained in 12 screens.
The three columns are the dimensions of the ESG score: environmental (E), social (S) and governance (G). Illustrative image.
A bank pollutes little, but decides who gets money
Banks have no smokestacks, so they are usually seen as a low environmental impact sector. The thesis points out that they affect the environment in two ways: directly, through their own operations, and indirectly, through the criteria they use to lend.
Governments and the UN also expect banks to finance the shift to a low-carbon economy. The thesis asks: do these practices improve or hurt banks' financial results? Earlier studies disagree.
Illustrative icons; the examples are those cited in the thesis (introduction and sections 3.1 and 4.1).
Of 1,201 articles, 40 made it through the sieve
The first article searched two large research databases (Web of Science and Scopus) for studies that measure the effect of sustainability on banks' results.
To choose without bias, the author used the SMARTER method: each article gets a score on three criteria with fixed weights, and only the top-scoring quarter moves on. Then a reading removed those off topic.
Side of each slab proportional to the square root of the number of articles (area ∝ number). Table 2.4; the totals per step are ours. Tap a slab.
The studies do not agree
The topic is recent: 15 of the 40 articles came out in 2023. In 14 of them, sustainability improved banks' profitability or value; in 7, it hurt them. The most used measure is the year's profit.
Number of articles among the 40 (section 2.4.2). An article can fall into more than one category, so the bars do not add up to 40. Figure 2.1 for the years.
Hundreds of banks, ten years of scores and balance sheets
The other two articles start from 1,356 listed commercial banks and keep those with enough data between 2014 and 2023: 441 banks from 54 countries in article 2 and 579 banks from 60 countries in article 3. Data come from the Eikon-Refinitiv database (LSEG) and the World Bank.
Circle area proportional to the number of banks. The others were dropped for having less than 5 years (article 2) or 4 years (article 3) of data.
Four pieces of the method. Tap the cards:
Does a country's credit flow through banks or the stock market?
The thesis splits countries by comparing bank credit to companies with the value of companies on the stock market, both as % of GDP. If bank credit is greater or equal, the country has banks at the center (bank-based); if not, the stock market at the center (market-based).
Where banks are at the center, they had much higher ESG scores in every pillar (Table 3.3, averages from 0 to 100):
Number of banks per country in article 2 (Appendix A). United States bar cut: 202 banks, 73% of the banks in the "market at the center" group (our calculation). Tap a country.
Higher sustainability score, more profit and more value
In the 441 banks, higher ESG scores came with higher profitability (ROE) and higher market value (Tobin's Q). The result holds for the overall score and for each pillar: eight models, eight positive effects.
The effect per score point is small. Choose a pillar and raise a bank's score to see the order of magnitude.
Our calculation. Starts from the sample averages (ROE 12%, Tobin's Q 1.02; Table 3.3) and applies the coefficients of Table 3.5, holding the other characteristics constant. ROE is a fraction in the thesis: 0.0004 per point = 0.04 percentage point. Shows association in the year, not cause. Stars: significance at 10% (*), 5% (**) and 1% (***).
With banks at the center, more profit in the year and less value on the market
Being in a country with banks at the center of credit favored short-term profit (ROE) in all five models tested. But it lowered market value (Tobin's Q) in four out of five.
For the author, these systems give banks stability and margins, but they are more regulated and conservative: they invest less in innovative projects, and investors expect less from the future. The exception was the model with the governance score, in which value also rose.
Effect of being in a country with banks at the center, in each model of Table 3.6 (columns = the score included alongside). We show direction and significance; coefficient sizes are not comparable between ROE and Tobin's Q. Tap a model.
Sustainability pays more where banks are at the center
The author tested whether the effect of the scores changes with the country's system. In all eight models, the score paid extra in countries with banks at the center, in both profit and value. The pillar with the largest extra effect was governance.
For the author, where banks finance the economy, relationships with clients are long and close, and sustainability becomes strategy. In countries with the market at the center, however, the score was negative for profit; for value, only governance had a proven effect, also negative.
Our conversion of the coefficients of Table 3.7 to 10 score points (ROE in percentage points; Tobin's Q in its own unit). As the thesis explains (section 3.4.3), with the interaction term the score coefficient applies to countries with the market at the center. Tap a bar.
Almost half assess the environmental risk of borrowers; fewer than 1 in 10 joined the UN initiative
The third article looks only at the environment, with three measures for the 579 banks:
- Direct practice: the bank's environmental score (0 to 100), which reflects its own operations.
- Indirect practice: does the bank assess the environmental and biodiversity risks of projects before financing them? (yes or no)
- Policy: is the bank a member of the UN Environment Programme Finance Initiative (UNEP FI)? Members follow principles such as the Principles for Responsible Banking and the alliance for net zero emissions by 2050.
Averages from Table 4.3, computed over each bank's years (bank-year observations), not over banks. Illustrative grid of 100 observations.
Environmental practices and policy go with more profit and value, and pay more together
Each of the three measures, on its own, came with higher market value and higher profitability: six models, six positive effects. And when the bank is also a UNEP FI member, the effect of the practices, direct or indirect, increases: four out of four.
Block height: strength of evidence (1, 2 or 3 stars), not effect size: the thesis rounds these coefficients to two decimals, and the measures are on different scales (0 to 100 score × yes or no). Tables 4.5 and 4.6. Tap a block.
See the thesis coefficients
Sustainability can be bank strategy, not just a cost
Investors and lenders
ESG criteria can serve as a complementary indicator of a bank's soundness and good risk management.
Bank managers
Consistent environmental practices can align profitability goals and sustainability commitments, especially in lending.
Regulators
The results support policies that require transparent, standardized social and environmental information.
Governments
Promoting sustainable practices in banking can align financial stability and sustainable development.
What this research does not say
- Only listed banks. They tend to be more transparent and to have sounder governance, which may bias the sample. · according to the author
- Environmental data are still poorly standardized, especially in emerging countries. · according to the author
- Numbers only. The quantitative approach misses context factors that weigh on the relationship. · according to the author
- Association, not proof of cause. The method (dynamic panel) handles part of the problem, but the effects per score point are small and measured within the year. · our note
Credits
SANTOS, Vinicius Pereira dos. O efeito das práticas de sustentabilidade no desempenho financeiro do setor bancário [The effect of sustainability practices on the financial performance of the banking sector]. Doctoral thesis (Business Administration), Mackenzie Presbyterian University, São Paulo, 2025. Advisor: Prof. Dr. Michele Nascimento Jucá. Co-advisor: Prof. Dr. Zélia Maria da Silva Serrasqueiro Teixeira.
Research supported by CAPES (the Brazilian federal agency for graduate education) and the Instituto Presbiteriano Mackenzie. Data from Web of Science, Scopus, Eikon-Refinitiv (LSEG) and the World Bank. This version simplifies the work for the general public; the formulas and full tables are in the original text (in Portuguese).