Abstract:
1. Introduction
Commercial banks worldwide increasingly recognizing the significance of
Environmental, Social, and Governance (ESG) reporting in shaping their
corporate practices and reputations. There is a dearth of studies related to
ESG Reporting and Financial Performance in Sri Lanka. By examining the
relationship between ESG disclosures and financial outcomes, this study
aims to shed light on the potential value that robust ESG reporting can
bring to these banks and contribute to understanding sustainable business
practices within the local banking sector.
2. Research Methodology
The study utilizes secondary data collection, employing a dataset covering
five years (2018-2022) with data gathered from 24 licensed commercial
banks in Sri Lanka. A panel data regression model was employed to explore
the nuances of this relationship. FE model explores the significant results;
Return on Assets (ROA) is used as the proxy for financial performance,
while Environmental Disclosures (ED), Social Disclosures (SD), and
Governance Disclosures (GS) were used as independent variables.
3. Findings and Discussion
The findings offer significant insights specific to the context of Sri Lanka.
The results of the panel data analysis indicate a statistically significant
positive association between ROA and all three independent variables,
indicating that banks with better ESG ratings outperform others in terms of
asset returns.
4. Conclusion and Implications
The research concludes the importance of ESG integration for Sri Lankan
investors and provides investors in Sri Lanka with an empirical basis for
incorporating ESG factors into their investment strategies. Policymakers
can promote sustainable development and responsible business behavior
by introducing ESG reporting standards and incentives for ESG activities.
Commercial banks can benefit from understanding the financial advantages
of ESG practices, including enhanced performance and improved
stakeholder engagement.
