Does having a better ESG rating help during a crisis? Evidence from Central European banks

Abstract

The COVID-19 pandemic represented an unprecedented shock to the banking sector in Central Europe. This study investigates whether banks with stronger environmental, social, and governance (ESG) profiles demonstrated better financial resilience during the COVID-19 crisis, taking into account the mitigating effect of government support measures. A difference-in-differences empirical analysis with an interaction term for government intervention is outlined to isolate the impact of ESG factors on bank performance. The study compares pre-pandemic and pandemic outcomes for banks with varying ESG scores, controlling for country-level loan moratoria and schemes. The findings suggest that banks with a better ESG profile did not experience a weaker impact from the consequences of the COVID-19 pandemic, measured by ROA and ROE indicators.