An empirical investigation of ESG dimensions and bank performance: Evidence from the COVID-19 crisis

The Paris Agreement, signed at the end of 2015, aims to align financial flows with a path to low greenhouse gas emissions and climate-resilient development, guiding financial markets to directly participate in sustainable development via environmental, social, and governance (ESG) activities. As the COVID-19 pandemic provides an excellent opportunity to evaluate how exogenous shocks influence the functioning of the economic system, this research extends the double bootstrap truncated regression model proposed by Simar and Wilson (2007) by incorporating undesirable outputs to analyze how the pandemic affects the relationship between ESG dimensions and commercial bank performance.

The data come from the 2018–2022 annual reports of Taiwanese commercial banks and their corresponding annual sustainability reports, covering 30 commercial banks with a total of 120 observations. The empirical results show that although ESG dimensions may not directly benefit Taiwan's commercial banks, they do play an important role in cushioning the effects of external disturbances. Moreover, environmental sustainability offers greater benefits to non-financial holding banks than to financial holding banks, while social and governance sustainabilities have a greater impact on banks established before the 1991 deregulation than on those founded afterward.