Working Paper: CEPR ID: DP15816
Authors: Thomas Gehrig; Maria Chiara Iannino; Stephan Unger
Abstract: We provide transatlantic evidence about the relation between social responsibility and resiliency in the banking industry. We analyse various measures of resiliency, an exposure measure (SRISK) and a contribution measure (Delta CoVaR) to systemic risk, as well as measures of systematic risk (beta) and insolvency risk (z-score). Social responsibility is measured by Thomson Reuters' ESG-scores and their subcategories, both according to the older Asset 4 and the present TR ESG Refinitiv classification. We find that the social aggregate score significantly enhances resiliency in all dimensions and in both classifications. On the level of subcategories, we identify significant common resiliency enhancing factor proxies for long-term orientation, such as product responsibility and workforce training, while short-term objectives proxied by shareholder orientation tend to relate to lower levels of resiliency. Looking deeper into the components of each ESG pillar, we also discover significant transatlantic differences mainly related to the different organization of labour markets as well as the board structure.
Keywords: ESG scores; systemic risk; bank resiliency; financial stability; capital shortfall; sustainable banking
JEL Codes: F33; G12; G21; G24; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher aggregate ESG scores (Q56) | Enhanced resiliency (Y50) |
| Higher aggregate ESG scores (Q56) | Reduced systemic risk exposure (G19) |
| Higher aggregate ESG scores (Q56) | Lower contribution to systemic risk (G19) |
| Long-term orientation factors (D15) | Increased resiliency (D29) |
| Short-term objectives (L21) | Lower resiliency (D29) |
| Larger banks (G21) | Diminished positive effects from ESG measures (G38) |
| Ethical behavior (measured through ESG scores) (M14) | Complementary relationship with resiliency (Y80) |