ESG Variations Across Banking Loan Types: Evidence From European Listed Banks

Abstract

Building on social-capital theory and transaction-cost theory, we examine whether European banks' rated ESG performance varies systematically with the composition of their loan portfolios. Merging Refinitiv ESG scores with Orbis Bank Focus loan-book data for 51 EU-listed banks over 2005–2022, we estimate pooled OLS, random-effects, fixed-effects, lagged-variable, and dynamic System-GMM specifications. The evidence points to one robust regularity and two more qualified patterns. First, banks with higher mortgage-loan shares tend to have lower ESG ratings: a one-standard-deviation increase in mortgage intensity is associated with an approximately three-point lower composite ESG score and up to five points lower environmental pillar score, and the negative mortgage association remains visible in the dynamic System-GMM models. Second, consumer-loan intensity is positively associated with ESG ratings in random-effects, fixed-effects, and lagged fixed-effects specifications, particularly for the environmental and social pillars, but this association is not statistically significant in the dynamic System-GMM models. Third, corporate-loan exposure shows no stable relationship with overall ESG ratings. We interpret these patterns as consistent with a trust-intensity mechanism: ESG commitments and lending technologies appear to align differently across collateral-rich, standardised lending and softer-information retail activities.