Does it pay to be sustainable? Evidence from European banks

This paper aims to explore the relationship between the economic, environmental, social, and corporategovernance component of Corporate Social Performance (CSP) and the Corporate Financial Performance (CFP)in the European banking sector. The empirical analyses, based on panel data, are performed on a sample of 70listed European banks (EU28) over the period 2011-2015. The main results show a significant and positiverelationship between the aggregated CSP measure and the average profitability of banks' assets and marketcapitalization. Furthermore, the social component positively affects the average return on assets and equity; theeconomic component is positively associated with the performance of prospective profitability and marketcapitalization; finally, the environmental component is positively associated with the ROAA. Sustainable banks,in line with the stakeholder Theory, through ethical and social policies, might increase their financial andeconomic performance.