Sustainable Banking by Rosella Carè

Author:Rosella Carè
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

4.5 The Relationship Between Environmental Disclosure, Environmental Performance, and Firm Performance

After the financial crisis, banks have changed their approach to CSR and especially to CSR disclosure, being more aware of the potential reputational risks and brand image damage related to these issues (Scholtens 2006; Thompson and Cowton 2004; Carnevale and Mazzuca 2014). Sustainability reporting can positively affect the stakeholders’ perceptions of firm performance, value, risk, profitability, share price and cost of capital (Gray et al. 1995b; Scholtens 2008; Cormier et al. 2011; Jizi et al. 2014). Miles and Covin (2000) examine the relationship between environmental performance, reputation and financial performance by concluding that being a good environmental steward provides firms with a reputational advantage that leads to enhanced financial performance. Similarly, Konar and Cohen (2001) highlight that poor environmental performance has significant negative effects on reputation. By analyzing the interrelations between environmental disclosure, environmental performance, and economic performance, Al-Tuwaijri et al. (2004) highlight a positive relationship and that “good” environmental performance is significantly associated with “good” economic performance. The quality and quantity of sustainability and thus voluntary disclosure in the banking sector is highly variable and is strictly influenced by a series of aspects. As clarified by the European Commission (EC 2017), appropriate nonfinancial disclosure is an essential element to enable sustainable finance. In suggesting what may be considered as Key Performance Indicators (KPIs), the recent guidelines on nonfinancial reporting from the EC (2017/C 215/01)9 state: “A bank may consider that its own water consumption in offices and branches is not a material issue to be included in its management report. In contrast, the bank may assess that the social and environmental impacts of projects that it funds and its role in supporting the real economy of a city, a region or a country are material information​” (EC 2017, p. 6).10 Figure 4.2 summarizes the main risks and opportunities that may arise from the decision to disclose or not to disclose nonfinancial information.

Fig. 4.2Opportunities and risks of inaction related to disclosure (Source: Our elaboration)

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