Essays on the Influence of ESG Scores on Banking Economics and Regulatory Adaptation: A Cross-Regional Analysis of GCC, EU, and US Financial Institutions

This thesis analyzes the impact of Environmental, Social, and Governance (ESG) scores on the banking sector across different regions and regulatory environments.
Chapter 1 evaluates the effect of ESG scores, particularly the environmental pillar, on the cost of capital for Gulf Cooperation Council (GCC) banks. Using a mixed-effects Restricted Maximum Likelihood (REML) regression model on data from 27 GCC banks between 2015 and 2021, the study finds a significant positive association between environmental scores and the cost of capital, suggesting higher environmental performance increases capital costs in the GCC.
Chapter 2 examines the relationship between ESG scores and bank performance in the US and EU, focusing on the EU Non-Financial Reporting Directive (NFRD). Fixed effects regression and Difference-in-Differences (DiD) models show higher ESG scores improve Return on Equity (ROE) but pose liquidity management challenges. The Generalized Method of Moments (GMM) model confirms a significant liquidity reduction for EU sustainable banks post-NFRD.
Chapter 3 compares the responses of US and EU banks to the EU's 2018 Action Plan on Financing Sustainable Growth, analyzing changes in loan costs and lending patterns. The analysis reveals EU banks lower borrowing costs for sustainable borrowers, while US banks increase costs for similar borrowers, highlighting differing impacts of EU policy on international lending practices.
This thesis highlights the significance of strategic adaptability to regional and regulatory settings and offers insights into the relationship between ESG performance and financial indicators in banking. The results highlight the necessity of increased international collaboration and harmonization of regulations in order to accomplish worldwide sustainability goals.