ESG Risks: Environmental. Statistical analysis of certain environmental indices for a certain sector of economic activity

Abstract

This Dissertation aims to explore the aspects of Environmental Social Governance (ESG) risk in the European banking sector. To succeed this, three main “ingredients” were used:

• Detailed description of ESG ecosystem. • Extensive literature review, both qualitative (how ESG are linked to the risk of businesses) and quantitative (in what ways ESG affect banking risk, if they are good predictors of financial distress or other banking performance indicators like Non Performance Loans and if they are connected and how with operational risks of banks). • Examining the environmental performance of European banks using statistical approach.

For the statistical approach, environmental data of emissions (scope 1 and scope 2) were collected from the 50 largest European banks, in terms of assets, alongside with financial and operational data (like profits, number of branches, number of countries that banks operate and use of resources like energy water and paper).

With the use of thee statistical techniques (observation method for comparing data, geographical approach and regression analysis), nine interesting conclusions were found which are noted in Chapter 4. The most important are: • Increase in a bank’s profit is not correlated with increase in air pollution (i.e more scope 1 and scope 2 emissions). • Profit efficiency is even less correlated with either more air pollution or more use of recourses (like energy, water and paper). • The location of banks affects the ESG culture that they carry. • Air pollution is associated with the number of branches and the number of countries that a bank operates.