ESG performance, bank lending, and the COVID-19 pandemic: international evidence

Abstract

Purpose: This research explores the relationship between banks’ environmental, social, and governance (ESG) performance and lending practices throughout the world. Design/methodology/approach: The authors employ a linear regression model with fixed effects and apply the Generalized Method of Moments (GMM), an instrumental variable approach, to address potential endogeneity in analyzing the impact of Environmental, Social, and Governance (ESG) factors on bank lending. The study utilizes data from 53 countries over the period 2002–2022, providing a broad international perspective on the relationship between ESG considerations and lending behavior. Findings: The research discovered empirical evidence that banks’ ESG performance significantly influences their lending activities. Interestingly, this relationship is insignificant in developing nations. In addition, this paper examines the moderating influence of the Coronavirus pandemic on the association between ESG performance on bank lending. This paper finds evidence that banks’ increased ESG activities during the health crisis tend to improve their lending performance, especially in developed countries. Our findings indicate that societal trust, bank capital, bank size, and credit risk exposure serve as moderating factors in the relationship between ESG and loan growth. Practical implications: Based on the study, this paper presents some implications for policymakers and stakeholders to address some of the pressing concerns. Originality/value: This paper examines the role of the COVID-19 health crisis in the association between ESG activities and bank lending across countries.