Banking on Sustainability: ESG Practices and Their Macroeconomic Influence in Europe

Abstract

This paper investigates the relationship between European GDP and firm-level characteristics of European banks, with a particular emphasis on environmental, social, and governance (ESG) performance. Using Ordinary Least Squares (OLS) regression, the analysis incorporates the ESG score, board size, average number of employees, executive members’ gender diversity, and management score grade as predictors of GDP. The results show that the ESG score and executive members’ gender diversity have a positive and statistically significant effect on GDP, while board size, average number of employees, and management score grade are negatively associated with GDP. To further examine the components of ESG, a stepwise regression was conducted including the environmental, social, and governance scores. The findings reveal that only the environmental score significantly contributes to explaining GDP, suggesting that environmental performance is the most economically impactful ESG pillar among European banks. These results underscore the importance of environmental initiatives in driving macroeconomic outcomes.