Study On The Impact Of ESG Performance On The Systemic Risk Of Commercial Banks

In recent years,natural disasters,epidemic shocks,economic crises and other major public crisis events have occurred frequently,making financial stability and economic development extremely challenging,exacerbating the systemic risks of commercial banks and triggering social concern about the environmental,social and corporate governance(ESG,the acronym for Environment,Social,Goverment)performance of commercial banks.The report of the 19 th CPC National Congress calls for compliance with the requirements of the 19 th Party Congress.The report of the 19 th Party Congress called for guarding the bottom line of no systemic financial risks,and the Central Economic Work Conference put the prevention and resolution of major risks,especially financial risks,as the first of three major battles.In this external environment,ESG,with sustainable development at its core,has prompted banks to take a higher mission,a longer time dimension and a broader view of their own development as well as systemic risk issues.So,what is the impact of ESG performance of commercial banks on their systemic risk? Does the impact vary depending on the classification of systemically important banks,their leverage ratios and capital adequacy levels? With the increasing attention on ESG concept,how does the ability of commercial banks to manage their own ESG and reputation risk affect systemic risk? These questions need to be addressed.This paper firstly summarizes the domestic and international literature related to ESG and systemic risk,focusing on the impact of ESG performance on systemic risk,based on stakeholder theory,risk management theory,and reputation theory as the theoretical basis for research hypotheses and empirical studies.Secondly,this paper selects 41 listed commercial banks in China from the first quarter of 2018 to the fourth quarter of 2021 as the research sample,and uses Wind ESG rating as a proxy variable for ESG performance of commercial banks;and by combing through previous systematic risk research literature,it selects the conditional value-at-risk differentialΔCo Va R as a proxy variable for systematic risk,and selects market volatility,liquidity spread,term spread,credit spread,and credit risk as proxy variables.The effect of ESG performance on the systemic risk ΔCo Va R of commercial banks was empirically examined using individual fixed effects models based on F-test and Hausman test results,replacement of explanatory variables,sample cut-off,and systematic generalized moment estimation(SGMM)for robustness testing of the benchmark regressions;and also tested the impact of ESG performance of the sample on its commercial banks’ systemic risk under the classification of systemically important banks,different leverage levels,and different capital adequacy levels.Finally,Wind ESG score data are selected as proxy variables for the three sub-dimensions of ESG performance of banks and investigate the impact on systemic risk ΔCo Va R respectively;Wind ESG management practices and ESG controversial events scores are selected as proxy variables for ESG management capability and ESG reputation risk of commercial banks,and then investigate the correlation with systemic risk of commercial banks.Through the above study,this paper draws the following conclusions:(1)There is a significant negative correlation between the composite ESG performance score of commercial banks and systemic risk ΔCo Va R,i.e.,the higher the ESG performance level and the stronger the ESG practices of commercial banks,the lower their systemic risk level.(2)The effect of ESG performance of commercial banks on their systemic risk varies depending on the classification of systemically important banks,different leverage levels,and different capital adequacy levels.The significant negative correlation between ESG performance of non-systemically important banks and systemic risk ΔCo Va R is weaker in the group of systemically important banks;the enhancement of ESG performance of low leverage banks and high capital adequacy banks has a The negative effect of ESG performance improvement on systemic risk is more significant for low leveraged banks and high capital adequacy banks.(3)Environmental(E)and social(S)performance of commercial banks are negatively correlated with systemic risk level ΔCo Va R,while the correlation of corporate governance(G)systemic risk level is weaker.That is,the better the environmental and social performance of commercial banks,the lower the level of systemic risk.(4)There is a significant negative correlation between ESG management capability performance and systemic risk ΔCo Va R of commercial banks,i.e.,ESG management capability of banks can effectively reduce the level of systemic risk;there is a significant positive correlation between ESG reputation risk of commercial banks and systemic riskΔCo Va R,i.e.,ESG reputation risk of banks significantly increases the level of systemic risk of commercial banks.Compared with the existing literature,the possible innovations and contributions of this paper are mainly in the following three aspects:(1)the existing literature on ESG area research mostly focuses on financial indicators,firm value,etc.,and the research on ESG performance and risk is also mostly on individual risk,such as financial risk,risk-taking and default risk issues,while the causes of systemic risk are complex and have high systematic and externalities.The existing literature has ignored the impact of ESG performance on systemic risk,and this paper expands the existing research perspective.(2)This paper extends the scope of existing research by studying ESG and systemic risk in commercial banks.Given that data on systemic risk measurement generally require stock price return data,domestic scholars’ research on systemic risk has mostly focused on the 16 banks that were listed earlier.This paper adopts 41(out of44)commercial banks in the category of monetary and financial services under the industry classification of the Securities and Futures Commission as the research object,which is more representative for studying the issue of systemic risk of commercial banks.(3)This paper provides research space for subsequent systemic risk studies,and future research on systemic risk can be further developed to further explore the impact of financial institutions’ specific ESG practices on systemic risk,or further expand the existing research scope to include micro and small banks to further study the systemic risk issue;the future research can not only be limited to the micro factors and external macro conditions of the research subjects,but also include the ecological environment factors that are incorporated beyond the economic and social impact factors,so as to better reflect the systemic risk issues of banks.