DP15816 Social Responsibility and Bank Resiliency

Author(s): Thomas Gehrig, Maria Chiara Iannino, Stephan Unger
Publication Date: February 2021
Keyword(s): bank resiliency, capital shortfall, ESG-scores, Financial Stability, sustainable banking, systemic risk
JEL(s): F33, G12, G21, G24, M14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15816

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.