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Environmental, Social, and Governance and Financial Stability in OECD Banks
Mujib, Maliha
Mujib, Maliha
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33.232-2025.23a Maliha Mujib.pdf
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Description
A Master of Science in Finance (MSF) by Maliha Mujib entitled, “Environmental, Social, and Governance and Financial Stability in OECD Banks”, submitted in December 2025. Thesis advisor is Dr. Donghyeok Jang. Soft copy is available (Thesis, Approval Signatures, Completion Certificate, and AUS Archives Consent Form).
Abstract
The study examines how Environmental, Social, and Governance performance affects the financial stability of banks in Organisation for Economic Co-operation and Development countries using data from 179 commercial banks between 2012 and 2024. This topic is important because it proves that Environmental, Social, and Governance is a strategic investment in long-term resilience, not just an expense for improving reputation. To test this, panel regression models with lagged variables and several cross-sectional checks are used. The main finding is very clear: better Environmental, Social, and Governance performance significantly reduces credit risk, leading to fewer non-performing loans, and also has a small positive effect on market valuation ratio. This confirms that Environmental, Social, and Governance acts as a practical tool for improving internal risk management. It is also found that while the market gives a small positive valuation to Environmental, Social, and Governance, it does not have an immediate, strong effect on a bank’s short-term liquidity or long-term solvency. Importantly, it is discovered that the extra benefits of Environmental, Social, and Governance tend to level off for banks that are already high performers or that operate in very stable countries, suggesting there are diminishing returns at the top end. Overall, the work shows that Environmental, Social, and Governance is a vital component of core financial stability, and the recommendation is that policymakers formally integrate it into banking supervision and that bank managers view it as a necessary long-term investment that strengthens the entire banking system.