Sustainability reporting and performance of MENA banks: is there a trade-off?

Abstract

Purpose Sustainability reporting has been widely adopted by firms worldwide given stakeholders’ need for more transparency on environmental, social and governance (ESG) issues. This study aims to investigate the relationship between ESG and bank’s operational (return on assets [ROA]), financial (return on equity [ROE]) and market performance (Tobin’s Q) in a group of emerging countries in the Middle East and North Africa (MENA) region. Design/methodology/approach This study examines 59 banks listed on the stock exchanges of MENA countries over a period of 10 years (2008-2017). Only conventional banks with all data for at least two years are included in the sample. The core independent variable is ESG scores, and the dependent variables are ROA, ROE and Tobin’s Q. This study uses bank- and country-specific control variables to measure the relationship between sustainability reporting and bank’s performance. Findings The findings from the empirical results demonstrate a significant positive impact of ESG on performance and economic benefits to shareholders. However, the relationship between ESG disclosures varies individually; unlike the majority of published research, the authors found that social performance plays a negative role in determining bank’s profitability and value. Furthermore, the authors present evidence in support of the impact of bank- and country-specific factors in determining bank’s performance. Originality/value To the best of the authors’ knowledge, this is the first study to investigate the impact of sustainability reporting on banks’ performance in the MENA region. It provides evidence that questions the positive relationship between sustainability reporting and financial measures of performance.

The Impact of Firm Size, Leverage, Firm Age, Media Visibility and Profitability on Sustainability Report Disclosure

“…In this study, the control variables commonly used in research on disclosure of SR are used as independent variables which are hypothesized to have an effect on disclosure of SR. This is recommended by previous research conducted by Khan (2019) and Buallay et al (2020).…”

Does the quality of voluntary disclosure constrain earnings management in emerging economies? Evidence from Middle Eastern and North African banks

“…For example, according to their credit levels and banking assets, MENA countries have been ranked second in terms of banking sector development (Ben Rejeb Attia et al , 2019). Similarly, banks operate in the MENA region have embraced Basel ii regulations that attempt to enhance the transparency and credibility of disclosed information Likewise, a series of reforms have been embraced by policymakers in the majority of MENA countries to build a solid, institutional and legal framework, which, in turn, attracts external fund and boost investors’ rights protection (Buallay et al , 2020). More specifically, enhancing the supervision, regulation and increasing transparency of banks are considered as a sample of the reforms that banks should undertake through imposing provisions for the information disclosed and implementing high-quality corporate governance mechanism that is in line with the international standards (Elfeituri, 2018).…”

Achieving Financial Sustainability in Ghana’s Banking Sector: Is Environmental, Social and Governance Reporting Contributive?

“…Some studies also concentrated on the impact of ESG reporting on the performance of banks and financial institutions. The empirical evidence of most of these studies showed a positive relationship between ESG reporting and banks' performance; for instance, Buallay et al (2020) investigated the impact of ESG reporting on the performance of banks in the Middle East and North Africa (MENA) regions. The authors showed that the combined ESG reporting had a significant positive impact on the value and financial performance of the banks.…”

“…This raises a question about whether banks financially benefit from ESG reporting, given that it cost resources to provide them. This question is legitimate because, in other countries, firms are committing large sums of resources in responsible businesses, especially in ESG issues; for instance, at the beginning of 2018, US$12.6 trillion, representing 26% of assets under management in the USA, was under ESG management strategy (Buallay et al, 2020). Besides, the size of socially responsible investment in the USA increased by US$8.7 trillion from 2016 to 2018, representing 38% increment.…”

“…In developing countries such as South Africa, Brazil and India, firms are mandated to report their ESG activities (Buallay et al, 2020). However, in other countries such as Ghana, firms are not obligated to provide information on their ESG activities.…”