Do private and public sector banks respond to ESG in the same way? Some evidences from India
Abstract
Purpose
The banking industry faces increasing scrutiny from stakeholders regarding its environmental and social impacts, given its crucial role in fostering economic growth. Banks have been encouraged to adopt environmental, social and governance (ESG) practices to mitigate risks and safeguard their reputation. However, the effectiveness of ESG sensitivity within the banking industry is contingent upon ownership and structural factors. The extent to which banks can integrate ESG considerations into their operations and decision-making processes may vary based on their ownership structures. Therefore, this study aims to examine if the impact of ESG on the performance of Indian banks varies between private and public sector banks.
Design/methodology/approach
The study employs six years of panel data from two separate samples of 12 private sector banks and 10 public sector banks in India. It utilises fixed and random effect estimation techniques with robust standard errors to derive accurate and reliable econometric results.
Findings
The main findings of this study reveal intriguing insights into the relationship between ESG factors and bank performance, considering the influence of ownership structure. For private sector banks, the ESG composite score, particularly the social dimension, negatively impacts financial performance. However, there is a contrasting positive effect on efficiency. In contrast, public sector banks demonstrate a positive and significant association between the environmental score and return on equity and non-performing assets.
Practical implications
The findings highlight the need for tailored strategies that align with ownership structure to achieve sustainable financial and societal outcomes in the banking industry. Furthermore, it emphasises the need for private-sector banks to streamline their ESG initiatives, especially in the social dimension, to mitigate negative impacts on their financial performance.
Originality/value
This study introduces a novel dimension by addressing the “one size fits all” bias in prior research that overlooked bank ownership differences when examining the impact of ESG factors on bank performance.
Keywords
Acknowledgements
The authors would like to extend their sincere gratitude to all the reviewers as well as the editor for their exceptional and insightful feedback, which has been extremely helpful in pinpointing the areas of work that needed improvement. The comments, questions and suggestions shared by the reviewers have been meticulously addressed through significant edits in the revised manuscript. The authors would also like to thank Dr Kuldeep Singh, Assistant Professor, SIBM Pune for his suggestions to improve the overall manuscript.
Citation
Jaiwani, M. and Gopalkrishnan, S. (2023), "Do private and public sector banks respond to ESG in the same way? Some evidences from India", Benchmarking: An International Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/BIJ-05-2023-0340
Publisher
:Emerald Publishing Limited
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