Environmental, Social and Governance Risks – New Challenges for the Banking Business Sustainability

Abstract

The present paper highlights the need to adopt sustainability strategies in the Romanian banking sector, from the perspective of the importance of the role of financial intermediary that commercial banks have, also reflecting the positive impact of these strategies on financial performance. The empirical study involved the use of linear regressions and processing by a program specialized in statistics and data science (Stata), and emphasizes the impact of environmental, social and governance (ESG) factors on Romanian banks and the opportunity to implement them in their own risk management strategies. For this purpose, were considered independent variables, at the microeconomic level: return on assets, the leverage multiplier, the credit-deposit ratio, the number of members of the management body, and at the macroeconomic level: the unemployment rate, the inflation rate and the growth rate of the Gross Domestic Product. The dependent variable used was the dummy variable called ESG. The results of our research show that, as the return on assets or the leverage multiplier increases, the probability that the bank implements a risk management strategy associated with environmental, social and governance factors decreases, and the number of members of the management body positively impacts the decision to get involved in social responsibility activities. Through this research was assessed the opportunity to integrate the risks associated with sustainable development within the strategies of development and risk management at the level of financial intermediaries and the importance of standardizing sustainable practices throughout the entire banking system in Romania

Keywords

• sustainability
• environmental
• social and governance risks (esg)
• commercial banks
• strategy
• risk management