The policy-led sustainability and financial performance linkage in the banking sector: case of Bangladesh

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Researchers in developed countries argue that banks should be free to decide about their sustainability initiatives without the interference from regulators. However, researchers in developing countries tend to think differently. This study aimed to focus on this argument by examining the linkage between sustainability and financial performance (SFP) aided through regulatory policy guidelines. In doing so, a comparative study was conducted between 2012 and 2018 to compare the pre- and post-status of SFP due to implementation of policy measures. Environmental, social and governance (ESG) scores were calculated and related with financial performance (return on assets) through regression analysis. The sample data includes 30 private commercial banks (PCBs) in Bangladesh. The analysis of the data shows that during these years, the overall sustainability performance, i.e., environmental, social and governance scores of the banks increased by 33 percent. However, the transformation of this performance into better financial performance could not been established even when age and size were taken into account. The current turbulent state of the banking sector due to growing non-performing loan has been identified as the single most influential factor for this neutral result. Research findings suggest that policy guideline initiatives do have a positive impact on bank sustainability. However, exogenous factors, such as political interference, may appease, deviate and prolong its impact on financial performance. This work will enhance the understanding of academics and policy-makers about the feasibility and impact of the policy-led sustainability model in the banking sector, particularly in developing countries.

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    • Figure 1. Conceptual framework
    • Figure 2. Scatter plotting of ESG scores with ROA and Age
    • Table 1. History of development of CSR guidelines/regulations in Bangladesh
    • Table 2. ESG score calculations
    • Table 3. Descriptive statistics and Pearson correlations (2012) (reproduced with permission from Specify the source)
    • Table 4. Descriptive statistics and Pearson correlations (2018)
    • Table 5. Results of regression analysis for ESG as an independent variable (2012)
    • Table 6. Results of regression analysis for ESG as an independent variable (2018)
    • Table 7. Results of regression analysis for environmental, social, and governance scores as independent variables controlled for size (2012)
    • Table 8. Results of regression analysis for environmental, social, and governance scores as independent variables controlled for size (2018)