Bank Sustainability, Default Risk and Systemic Risk Nexus

Abstract

This article aims to study the theoretical nexus between hank sustainability and hank risk. Bank sustainability can be proxied by ESG scores while bank risk can be gauged by stand-alone risk (Default risk) and systemic risk contribution. As per the risk-mitigation view: which has its .foundation in stakeholder theory and moral capital theory, bank .sustainability, and hank risk are inversely related. sustainability helps to create moral capital and has a risk mitigating effect like insurance. On the country, as per the over-investment view which has its foundation in agency theory and the association between bank risk and sustainability is positive because of “management entrenchment, i.e., managers invest in sustainability. For their good will or benefits and not for the shareholders · value maximization. If' we look of the relationship between bank risk and ESG pillars individually we found negative association in the environmental and special pillars, while both Positive and negative associations (i.e. mixed results) are found in the Case of the governance pillars.