Banks’ Energy Behavior: Impacts of the Disparity in the Quality and Quantity of the Disclosures

Abstract

Environmental, social, and governance (ESG) factors are becoming increasingly relevant for banks as entities that play an essential role in supporting the development of enterprises, individuals and the whole economy. The paper aims to evaluate the impact of the ESC directive on banks’ energy behavior disclosures, explicitly relating to behaviors towards energy use and its impact on banks’ performance. We developed a methodology to provide the objective characteristic of banks’ energy behavior. In the paper, the banks’ energy behavior (BEB) index is calculated using sixteen indicators, followed by further analysis of its relationship with banks’ performance measured by indexes referring to banks’ characteristics, efficiency, and solvency. Our results are based on an analysis of the disclosures in nonfinancial reports. We find correlations that indicate that banks that are more likely to demonstrate energy behaviors (with a high BEB index) are those that better manage their costs and are more attractive for investors. Further analysis suggests that banks’ energy behavior has no statistically significant correlation with other performance indicators. We find only limited evidence of statistical associations between energy behavior and the net interest margin. We argue that our results contribute to the significant body of literature supporting the role of ESG in active engagement with energy issues.

impact of ESG strategies integration on the operational and reputational risks

“…Other studies showed that there is evidence about a move towards the environmental practices and sales volume, which proves that the environmental disclosure and its reports contribute significantly to improving the reputation and image of companies conducting these practices (Mattera et al, 2021;Mohammad & Wasiuzzaman, 2021;Lubis & Rokhim, 2021). The results of other studies also indicated that there is a relation between the environmental activities and the profitability of companies carrying out them in many countries (Buallay, 2021;Klimontowicz et al, 2021).…”

“…Among the reasons that result in the reputational risks are the existence of some cases and lawsuits or some internal violations such as internal fraud and misrepresentation in the financial data (Gillan et al, 2021). Moreover, the existence of some harmful environmental practices for society leads to undermining the confidence of stakeholders in the company (Buallay, 2021;Klimontowicz et al, 2021). Among what causes the reputational risks also are that have arised from the weak governance mechanisms in companies (Gennaro & Nietlispach, 2021).…”

A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor

“…Considering that active transmission causes losses which are usually considered to be a small constant value, the marginal price of active power is consistent at all nodes; the general form of the marginal price at node i is shown in (12):…”

“…where α clear is the marginal market-clearing price; ∂P loss ∂P i is the net loss sensitivity of nodal active injection; and ∂P loss ∂Q i is the net loss sensitivity of nodal reactive power injection. (12) shows that the value of reactive power demand is attached to the price of electricity commodities in the electricity market through the incremental cost caused by net loss. It can be seen that the smaller the reactive power demand of an electricity commodity, i.e., the higher the power factor, the lower the price of the electricity commodity; at the same time, the smaller the fluctuation in power factor, the smaller the fluctuation in the price of the electricity commodity.…”

“…As a guarantee of performance on futures contracts, the margin is an important component of not only risk control in futures trading but also cost control in futures trading. It can be adjusted to influence the "leverage effect" of the futures market and the efficiency of the use of funds [12]. The amount of margin usually plays an important role in the trading conditions of the futures market.…”