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Banking on ESG: Examining the financial relevance of ESG to banks

Recent studies by MSCI ESG Research have shown an historical link between environmental, social and governance (ESG) factors and stronger corporate financial performance. However, investors may question whether the relationship between ESG and stronger financial characteristics also applied to banks. For spread businesses such as banks, profitability, returns and valuation are typically driven by balance-sheet strength, rather than by the transmission channels such as operational efficiency and oversight that apply to other industries. In this analysis, we show how ESG has further differentiated performance for such businesses.