ESG relevance in credit risk of development banks

Authors:

• Jan Porenta, University of Ljubljana, School of Economics and Business
• Vasja Rant, University of Ljubljana, School of Economics and Business

Keywords:

Development banking | Socio-economic development | ESG relevance | Credit risk | Sustainable finance

Abstract:

This paper investigates relevance of Environmental, Social, and Governance (ESG) risks in the context of banks’ credit risk. Focusing on a global sample of 567 banks, including 40 development banks, we aim to discern nuances in ESG relevance scores between different bank types. Our findings highlight distinct differences between national and multilateral development banks, with ESG risk significantly influencing credit risk in the latter. Notably, social and governance factors play pivotal roles in shaping credit profiles. Development banks, at the forefront of promoting good ESG practices, face heightened exposure and risks. This paper contributes to the understanding of the evolving dynamics of ESG impact on creditworthiness.

The Sustainable Development Goals (SDGs) addressed in the article are:

• SDG 8 – Decent work and economic growth

• SDG 9: Industry, Innovation, Technology and Infrastructure
• SDG 16: Peace, justice and strong institutions

The article is published in:
Research in international business and finance (ScienceDirect)

The content is freely accessible at:

ESG relevance in credit risk of development banks