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1. Introduction
Socially responsible investment (SRI) or responsible investing (RI) is not new and has evidence from the last century (19th century) (Eccles et al., 2020). It was a niche area confined to a tiny section of investors. However, over time, it catches the attention of a more extensive set of investors and gradually becomes part of mainstream investment criteria (Amel-Zadeh and Serafeim, 2018). Now, it is even accepted by the investment community, and rating agencies include them among their rating parameters (Billio et al., 2021). The change may be attributed to two complementing factors:
the investment community accepts the growing importance of nonfinancial (which includes environment (E), social (S) and governance (G) issues) factors; and
evidence of financial materiality of nonfinancial factors in sustainable value creation (Madison and Schiehll, 2021).
Despite the acceptance of nonfinancial factors in the investment decision criteria, there is a simmering concern regarding the financial viability of environment, social and governance (ESG)-based investments in the long run. As we look at business organizations’ goal(s), we have come a long way, and it has also evolved. It starts from profit maximization to shareholders’ wealth maximization (SWM). Furthermore, SWM is supplemented by corporate governance (CG) (Damodaran, 2010). Literature explores the commonality between SWM and SRI. However, to utter dismay, no consensus emerges. Jones and Felps (2013) report the weak link between SWM and social welfare, whereas Denis (2016) advocates a perfect hand-in-glove association.
There is no unanimity on whether ESG supports firms’ valuation (Zadeh et al., 2021; Moneva and Cuellar, 2009). The financial materiality of ESG is known and recognized. However, the literature does not unilaterally support the same. There is conflicting evidence that raises veritable doubt about the financial relevance of ESG (Orlitzky, 2013; Renneboog et al., 2008). The ambiguity does not end here. Banking is an important sector and an integral part of any economy (Olokoyo et al., 2016). The literature on ESG’s impact on the valuation in the banking sector is scarce.
Moreover, the scant existing literature raises more doubt than clarifies whether ESG supports the valuation or not in banks (Buallay et al., 2019). Information and communication technology (ICT) plays a vital role in banking operations (Al-Busaidi and Al-Muharrami, 2021; Aliyu and...