Title: Climate risk, sustainability, and financial performance: insights from the OECD banking sector

Authors: Soumaya Maztoul; Rim Oueglissi

Addresses: ESCT, Finance Department, University of Manouba, Tunisia; LARIMRAF, ESCT, University of Manouba, Tunisia ' FSJEG, Economics Department, University of Jendouba, Tunisia; ECSTRA, IHEC, University of Carthage, Tunisia

Abstract: This study investigates the relationship between banks' environmental, social, and governance (ESG) performance and their financial profitability in the context of climate risks. Using a dataset of 146 OECD banks over the period 2009-2019, we explore whether good ESG performance acts as a buffer against climate risks, thereby enhancing profitability. Our feasible generalised least squares (FGLS) estimates reveal that while climate risks adversely affect bank performance, higher ESG scores significantly buffer this negative effect. Notably, environmental and social factors are particularly crucial in reducing climate risk's negative impact. These findings, robust across various empirical specifications, provide crucial insights for policymakers and bank executives, highlighting the importance of integrating ESG criteria into banks' risk management strategies to bolster resilience against climate-induced financial disruptions. Furthermore, it contributes to the growing literature on sustainable finance and climate risk management.

Keywords: climate risk; sustainability; bank performance; environmental, social, and governance; ESG; feasible generalised least squares; FGLS.

DOI: 10.1504/IJSE.2026.151080

International Journal of Sustainable Economy, 2026 Vol.18 No.1, pp.19 - 39

Received: 08 May 2024
Accepted: 06 Sep 2024
Published online: 13 Jan 2026 *

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