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1. Introduction
Before the financial crisis, the banking and financial service sectors were responding more slowly than other sectors to sustainability challenges (Jeucken, 2002). Jeucken and Bouma (1999) stated that banks were slow in examining the social and environmental impact on their performance. According to Jeucken (2004), banks were not interested in their environmental impact. Additionally, Earhart et al. (2009) found that the financial sector was still behind other sectors in terms of managing environmental and social impacts.
In 2008, after the financial crisis, some banks were able to survive and some even continued to grow, while others collapsed (Earhart et al., 2009). Banks that were able to survive and grow were banks that operated sustainably and focused on social, environmental and governance factors (Earhart et al., 2009). As a result, in order to survive, banks are starting to focus on environmental and social value, in addition to financial value.
Since the financial crisis, many studies have observed that banks and financial institutions have become the leading sector in sustainability reporting (Husted and de Sousa-Filho, 2017; Kuzey and Uyar, 2017; Pryshlakivsky and Searcy, 2017). However, despite the significant attention researchers have paid to sustainability reporting, there are few studies that focus on the relationship in the banking sector between the three dimensions of sustainability (environmental, social and governance (ESG)) and performance (i.e. De la Cuesta-González et al., 2006; Branco and Rodrigues, 2008; Chih et al., 2010). Chih et al. (2010) examined only the determinants of corporate social responsibility in financial institutions. However, Branco and Rodrigues (2008) argued that little attention has been paid to sustainability reporting in the area of environmental impact by companies in banking and financial services.
The current study goes beyond prior research by connecting the three sustainability dimensions (ESG) with different indicators of business performance: operational performance, measured by return on assets (ROA); financial performance, measured by return on equity (ROE); and market performance, measured by Tobin’s Q (TQ). The effects of sustainability reporting on multiple performance dimensions can give us further insights into ESG’s impact. More specifically, this study focuses on a sample from the 20 countries that top the list of achievers of sustainable development goals for the 10 years 2007 through 2016 (SDG...