Evaluating the Influence of ESG Ratings on the Corporate Operational Performance: Evidence from Commercial Banks in China

With growing global emphasis on sustainable development and social responsibility, Environmental, Social, and Governance (ESG) ratings have emerged as critical metrics to evaluate commercial banks’ operating performance. The paper utilizes panel data spanning 2009 to 2022 from large state-owned and joint-stock commercial banks in China. It employs a two-way fixed effect model and robustness tests, alongside tests for heterogeneity analysis and moderating effect to conduct empirical analysis. The findings of the fixed effect model indicate that improvements in ESG performance have advantageous impacts on commercial banks’ operating performance, particularly with higher growth rate for operating income Robustness tests including mixed regressions, Tobit tests, variable substitutions, and tests of endogenous bias have validated that initial regression findings still hold. Tests of heterogeneity analysis reveal that among large state-owned commercial banks, banks with higher leverage, larger major shareholder ownership, and larger banks scales, ESG performance can significantly affect the banks’ operating performance, and the relationship exhibits positive. Furthermore, the paper finds that GDP growth rate, CPI and analysts’ coverage can strengthen the relationship between ESG performance and commercial banks’ operating performance through moderating effects. The research provides policy proposals and strategic recommendations tailored for policymakers, banks, and investors, building on these insights.