Reversing the business rationale for environmental commitment in banking: Does financial performance lead to higher environmental performance?

Abstract

Purpose

The banking industry plays a key role in society because of its role as a financial intermediary. Today’s banks are being asked to endorse environmental objectives, and recent studies have shown that large banks with strong financial performance are more likely to engage in environmental actions. Thus, the purpose of this paper is to investigate the link between corporate financial performance (CFP) and corporate environmental performance (CEP).

Design/methodology/approach

The authors focused on the French banking sector, using the data from a sample consisting of 191 observations covering 68 banks from 2008 to 2011. The environmental scores from the Vigeo database were the proxy measures for the extent to which banks engage in environmental actions. A panel regression model was employed for this study.

Findings

The findings show that high CFP was associated with high CEP. The findings also reveal that CFP and CEP may strengthen each other, suggesting a complex bidirectional relationship.

Originality/value

While many studies have examined whether it pays to be green, thus focusing on the causal relationship from CEP to CFP, few have considered that the causal direction might be reversed, from CFP to CEP. Furthermore, to the best of the authors’ knowledge, this paper is the first to analyze the CFP-CEP relationship using French bank data.

Citation

Laguir, I., Marais, M., El Baz, J. and Stekelorum, R. (2018), "Reversing the business rationale for environmental commitment in banking: Does financial performance lead to higher environmental performance?", Management Decision, Vol. 56 No. 2, pp. 358-375. https://doi.org/10.1108/MD-12-2016-0890