This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005-2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG-bank stability linkages vary significantly across banks' characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non-financial information.

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While the concept of sustainability is receiving growing attention from investors, firms, regulators, and researchers, little is known about its role in the insurance industry. As institutional investors and risk-absorbers from businesses and individuals, insurers adopt an operating model that is more inclined to target long-term objectives; they should be among the firms benefiting the most from engaging in sustainable practices. The existing literature provides evidence of the positive impact of sustainability on commercial stability, but this is the first study to examine this relationship for the insurance sector. Focusing on American listed insurers, we found that sustainability, proxied by Environmental, Social and Governance (ESG) scores, enhances the stability of insurers, and that this relationship is driven by environmental and social dimensions. We did not observe a significant contribution from the governance dimension. Finally, we found a stronger association for life insurers. Our results are shown to be robust to endogeneity, enterprise heterogeneity and potential sample selection biases.

This study explores empirically the effects of corporate income taxes on the incentive to invest in corporate social responsibility (CSR) activities. We estimate the relation between CSR ratings and firm‐specific corporate effective tax rates for a large sample of nonfinancial‐listed companies from 15 European countries during 2006–2016. By employing an instrumental variable approach, we find that average effective tax rates are negatively correlated with CSR ratings. Our findings are also consistent under additional tests and robustness checks. We, therefore, can provide suggestive evidence that corporate taxation discourages corporate socially responsible behaviour. At the same time, in a tax policy perspective, our analysis suggests how countries could encourage through the tax system the corporate provision of sustainable investments.

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PurposeThe aim of the paper is to investigate the risk-hedging and/or safe haven properties of environmental, social and governance (ESG) index during the COVID-19 in China.Design/methodology/approachThis paper employs the DCC, VCC, CCC as well as Newey–West estimator regression.FindingsThe findings provide empirical evidence of the risk hedging properties of ESG indexes as well as of the environmental, social and governance thematic indexes during the outbreak of the COVID-19 crisis. The results also support the superior risk hedging properties of ESG indexes over cryptocurrency. However, the authors do not find any safe haven properties of ESG, Bitcoin, gold and West Texas Intermediate (WTI).Practical implicationsThe paper offers therefore, practical policy implications for asset managers, central bankers and investors suggesting the pandemic risk-hedging opportunities of ESG investments.Originality/valueThe study represents one of the first empirical contributions examining safe-haven and hedging properties of ESG indexes compared to traditional and innovative safe haven assets, during the eruption of the COVID-19 crisis.

Using a large sample of EU non-financial firms over the period 2008-2018, this study examines the effect of the 2014 EU Non-Financial Reporting Directive on corporate social responsibility (CSR) and finds that the Directive has led to an increase in CSR transparency and performance. Further, it shows that the association between the Directive and CSR transparency is stronger for smaller firms, firms highly followed by analysts and firms headquartered in countries with strong legal systems. The adoption of CSR reporting after the Directive's enactment, small firm size and investments in research and development strengthen the positive effects of the Directive on CSR performance. However, the mandating of CSR reporting assurance by some EU member states seems not to have any significant impact. Lastly, our study shows that after the Directive's enactment, firms adopting CSR reporting experienced lower systematic risk and cost of equity. Our study contributes to the debate about whether and how non-financial disclosure should be regulated and shows the positive effects of the 'comply or explain' approach. It also provides insights for the EU in relation to the recently approved proposal to extend CSR reporting regulation to listed small and medium-sized enterprises and mandate CSR reporting assurance.

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