The impact of individual ESG components on commercial bank performance: Evidence from Vietnam
Main Article Content
Abstract
Purpose – This study examines the distinct effects of the three individual dimensions of Environmental, Social, and Governance (ESG) scoring on the financial performance of Vietnamese commercial banks over the 2015–2023 period. Unlike prior research that relies on aggregate ESG indices, this paper decomposes ESG into its constituent components to identify which pillar drives value and through which performance channel.
Design/methodology/approach – Using a manually constructed ESG scoring framework applied to 27 listed commercial banks in Vietnam, we obtain an unbalanced panel of 243 bank-year observations. Financial performance is measured by Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). Estimation proceeds through Pooled OLS, Fixed Effects (FEM), and Random Effects (REM) models, with the Feasible Generalised Least Squares (FGLS) technique adopted as the primary estimator to correct for heteroscedasticity and serial correlation identified in the data.
Findings – FGLS results indicate that the Environmental score (Escore) has a significant and positive effect on all three performance measures (ROA, ROE, and NIM) at the 1% significance level. The Social score (Sscore) significantly improves ROA but does not reach statistical significance for ROE or NIM. The Governance score (Gscore) exerts a statistically significant negative effect on ROA, suggesting that the cost burden associated with current governance structures outweighs short-term financial benefits. Bank-level controls confirm that the loan-to-deposit ratio (LDR) enhances performance while non-performing loans (NPL) and, for certain specifications, the liquidity ratio (LR) constrain profitability.
Originality/value – This study contributes to the sparse literature on decomposed ESG–bank performance nexus in emerging markets by constructing original ESG scores from primary disclosure data. The findings yield differentiated policy recommendations for bank managers and regulators in Vietnam seeking to leverage sustainable finance as a tool for financial performance improvement.
Practical implications – Banks that systematically enhance their environmental performance and community-oriented social programmes can expect measurable gains in profitability. Governance initiatives, however, require careful cost–benefit calibration to avoid eroding short-run financial returns.
Keywords
Bank performance; Commercial banks; Environmental score; Governance score; Social score
Article Details
Field of Economic (JEL Codes)
G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages - Financial Institutions and Services, G30 - General - G34 - Mergers • Acquisitions • Restructuring • Corporate Governance - Corporate Finance and Governance, M14 - Corporate Culture • Diversity • Social Responsibility - Business Administration, Q56 - Environment and Development • Environment and Trade • Sustainability • Environmental Accounts and Accounting • Environmental Equity • Population Growth - Environmental Economics
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