ESG dimensions and bank performance: an empirical investigation in Italy

Purpose This study aims to investigate the impact of environmental performance, social responsibility and corporate governance (ESG) on bank performance (BP) in the Italian banking sector. It analyzes the relationships between 10 dimensions of ESG pillars and BP indicators during the period 2016–2020. Design/methodology/approach This study examines a sample of 105 Italian banks and develops three econometric models to verify the effect of ESG initiatives on BP indicators. The independent variables are the ESG dimensions collected from the Refinitiv database, whereas the explanatory variables are performance indicators measured through accounting and market variables. Findings The findings show that ESG policies negatively affect operational and market performance in the banking sector, suggesting that Italian banks have not fully embraced strong sustainability procedures. However, the relationships between ESG dimensions are mixed if measured individually. The results show a significant positive impact of emission and waste reductions on financial and operating performance, but regarding social aspects, it is proved that better product responsibility decreases accounting performance. Research limitations/implications This study offers an in-depth examination of ESG practices in relation to current and future performance. In particular, the findings provide practitioners and academics with an actual set of predictors in the ESG area to improve BP. Originality/value To the best of the authors’ knowledge, this is the only study that has investigated the impact of ESG issues on BP in Italy. Few prior studies have used all dimensions of ESG policies at a disaggregated level to investigate their effect on various performance indicators.