Finance Research Seminar Series - ESG activity and bank lending during financial crises

We would like to invite all enthusiasts and researchers to the January 2023 Kozminski University Finance Research Seminar! When? January 27th 2023 at 12:15 PM (CET) Where? MS Teams (Online) Details about the location and remote access will be sent to the provided e-mail address once the registration is completed. The registration form is available below.

Title: ESG activity and bank lending during financial crises (co-authored with Prof. Amine Tarazi, Université de Limoges, France) Abstract: This paper explores how banks’ environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of European listed banks with available ESG scores from 2002 to 2020 and consider the global financial crisis of 2007-2009 and the European sovereign debt crisis of 2010-2012. We estimate a two-step system GMM dynamic panel data model and also address potential endogeneity with instrumental variable (IV) estimations. We find that lending falls to a lesser extent for banks with higher ESG scores during crisis times. An investigation of the different potential channels shows that, during crises, banks more engaged in ESG activities are less affected in terms of credit risk, asset risk, and profitability. They also face a lower reduction in market funding, allowing them to downsize to a lesser extent during crises, and their deposit rates do not increase as much as in less ESG-engaged banks. A deeper investigation reveals that our findings mainly hold for banks focused on traditional lending and deposit activities and are essentially driven by the environmental pillar component of ESG scores and the global financial crisis of 2007-2009