THE ROLE OF ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) PRACTICES IN ENHANCING FINANCIAL PERFORMANCE IN COMPANIES, WITH A FOCUS ON THE BANKING SECTOR: A LITERATURE REVIEW

Abstract

This study reviewed the literature on the role of environmental, social, and governance (ESG) practices in improving the financial performance of companies, focusing on banking institutions. The study aimed to shed lights on methods and tools used in dealing with the role of ESG in enhancing financial performance in the scientific research literature, knowing the results drawn and the gaps between them, and synthesizing them into a coherent summary of the knowledge developed in this regard. The research included 45 previous studies for the period from 2012 to 2023. The study includes four topics: ESG and the environmental and social costs, ESG and the financial performance in the banking sector as well as other sectors, and finally indicators and models for measuring ESG and financial performance, and the relationship among them. The study adopted the methodology of analyzing previous studies by reviewing their contents and highlighting the objectives, sample, location, variables of the study, procedures and results. The study found that ESG indicators issued by rating agencies and accounting indicators such as ROA, ROE, and the regression equation are the most widely used measures and models in examining the relationship between ESG and financial performance, and that the role of ESG in companies and other sectors is more influential on financial performance than on banks.

Keywords: ESG, environmental factors, social factors, governance, financial performance, disclosure, sustainability, banking sector.

 JEL Codes: Q5, Q56, I3, J1, G3, K2