ENVIRONMENTAL, SOCIAL AND GOVERNANCE PRACTICES AND FINANCIAL PERFORMANCE OF LISTED COMMERCIAL BANKS IN AFRICA
Abstract
Purpose of Study: This research evaluated the impact of environmental, social and governance (ESG) practices on the financial performance of listed commercial banks in Africa.
Statement of the Problem: Since the 2008 global financial crisis, bank profitability has been a concern, with a notable decline in Africa's top five banking markets since 2016. On the other hand, the costs associated with ESG compliance have been increasing. This study examined the impact of ESG practices on the financial performance of listed commercial banks in Africa.
Methodology: The study adopted a positivist research philosophy and an explanatory non-experimental approach, using purposive sampling to select 15 banks from 145 listed in Africa. Secondary data on ESG scores and financial performance were analyzed using descriptive and inferential statistics, with panel multiple regressions to account for time and cross-sectional dimensions.
Result: The direct effect regression results revealed that environmental practices had a negative but statistically insignificant impact on financial performance as measured by Tobin's Q. Similarly, social practices also exhibited a negative relationship with Tobin's Q, but this impact was insignificant. However, governance practices showed a negative and significant relationship with Tobin's Q. The study further investigated the moderating effect of bank size on the relationship between ESG practices and financial performance, finding insufficient statistical evidence to support that bank size significantly moderates this relationship when using Tobin's Q as the performance measure.
Conclusion: The study concludes that environmental and governance practices negatively affect Tobin's Q, social practices have no significant impact, and bank size does not moderate the relationship between ESG practices and Tobin's Q.
Recommendation: The study recommends prioritizing solid governance structures for financial performance and further research on ESG practices, bank size, and financial performance interactions.
Keywords: Environmental practices, social practices, governance practices, financial performance, Tobin's Q, commercial banks, Africa, bank size.
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