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FINANCIAL ECONOMICS

The nexus of environmental, social, and governance practices with the financial performance of banks: A comparative analysis for the pre and COVID-19 periods

ORCID Icon, , , &
Article: 2183654 | Received 05 Oct 2022, Accepted 18 Feb 2023, Published online: 26 Feb 2023
 

Abstract

This study aims to examine the impact of ESG practices on the financial performance of the banking industry of Pakistan during the pre and COVID-19 periods. The data were collected from the annual reports of selected banks for the pre-COVID-19 period (2018) and the COVID-19 period (2020). Results of the t-test show that there is a significant difference in ESG disclosures between the pre and during-COVID-19 periods. The regression analysis shows that the formative ESG factor positively affected the financial performance of the banking industry during the pre-COVID-19 period. While the reflective factors (environmental and social) positively affected the financial performance of the banking industry in the pre-COVID-19 period. During the COVID-19 period, the formative factor of ESG was found to have a significant positive impact on the financial performance of the banking industry. Similarly, in this period, the reflective factors (social and governance) were also found to have a significant positive impact on the financial performance of the banking industry. Interestingly, environmental sustainability negatively impacted the financial performance during the COVID-19 period. It indicates that the banking industry ignored environmental sustainability practices during the COVID −19 period, negatively affecting their financial performance. It suggests that ignoring environmental sustainability practices will deteriorate financial performance following the COVID-19 period. These results have profound policy implications for practitioners and policymakers in the banking industry, which are discussed.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.