Panel analysis demonstrates ESG performance improves bank financial stability across 56 countries, highlighting institutional quality as a critical moderator during green transitions.
Key Points
To examine how ESG performance affects bank financial stability and evaluate the moderating roles of green financial product share and national institutional quality.
Analyzed an unbalanced panel dataset of 251 banks across 56 countries spanning 2009 to 2024.
Evaluated bank financial stability using the Z-Score and assessed institutional quality via the Rule of Law index.
ESG performance is positively associated with bank stability, but this stabilizing effect diminishes as the proportion of green financial products in a portfolio increases.
Institutional quality moderates this relationship differently across economies: Rule of Law acts as a substitute for sustainability strategies in developed nations but functions as a complement that reinforces stability in emerging markets.