Cosimo Paccione

The integration of sustainability factors in banking activities is becoming more urgent and necessary since banks are asked by regulatory and supervisory authorities to integrate Environment, Social and Governance (ESG) components in their risk management and governance frameworks. In literature, there is a lack of studies that assess the sustainability orientation of banks. We tried to fill this literature gap by providing a formal approach to evaluate the sustainability profile of Italian banks against the requirements of Article 111 bis of the National Normative Framework, which defines specific criteria for “sustainable banks”. Exploiting a mixed‐method approach, we analyze banks' compliance with the requirements of Article 111 bis and develop a distance metric that allows us to evaluate the distance of traditional banks from a selected benchmark compliant with Article 111 bis. While our findings reveal that Italian banks fall short of complete compliance with Article 111 bis, positive trends, particularly in sustainable lending, are discernible. Our paper represents an initial reflection on the definition of a sustainable business strategy, identifying crucial aspects that can be considered in harmonizing the bank's transition path to sustainability.

The purpose of this paper is to study the impact of environmental, social, and governance (ESG) practices on banks’ reputation and market performance. In particular, we aim to analyse whether banks adopting ESG-compliant practices can reduce their reputational damage due to financial sanctions and increase their market performance. In order to demonstrate the effect of banks’ ESG practices in reducing reputational damage due to financial penalties imposed by supervisors for breaches of regulatory requirements, we analyze a sample of 21 banks — selected because of the availability of information on sanctions imposed by the supervisory authorities — by applying a pre-selection model based on the trend of historical returns. With reference to the selected sample, we verify the percentage of securities characterized by different levels of sanctions and different ESG scores. Overall, we find that ESG aspects have a positive impact on stock performance, although higher ESG scores do not, per se, mean a lower probability of sanctions. Differing from previous research, our study, by focusing on financial sanctions, provides useful insights concerning the ESG impact on both market performance and reputational aspects.