How can Chinese A-shared listed bank’s ESG activities affect their risk-taking?

. The sustainable development of society has gradually been the world's attention at all levels. At the 75th session of the UN General Assembly, the Chinese government said it would aim to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. All levels of government in China are also responding to the call, and how to promote green and sustainable development has become China's top priority to achieve high-quality double reduction goals. As a banking-led prosperous economy, how to implement the Environmental, Social, and Corporate Governance (ESG) concept in the banking industry has become the most important to achieve the double reduction goal of quality and quantity in China. In recent years, the CBRC and the People's Bank of China (PBC) have issued much guidance on transforming the banking industry through ESG. Considering that the number of A-share listed bank companies in China, especially the number of local banks (urban commercial banks and rural commercial banks), has increased in recent years, it is also considered that the existing research focuses on the relationship between ESG management and bank performance, and there is little analysis on bank risk. Based on the annual data of China's A-share listed banks from 2018 to 2022, this paper uses regression analysis to explore the relationship between the implementation of ESG and bank risk-taking.


Introduction
With the rise of responsible investment since the 1990s, ESG-related concepts have also rapidly swept the world in recent years [1].Overall, ESG refers to the governance of the environment, society, and government.
Specifically, E represents the company's measures to protect the environment, and S represents whether the company can treat every stakeholder fairly.G represents whether the company's governance meets the requirements of its shareholders.The basic concept related to ESG, namely corporate social responsibility investment, can be traced back to the 1970s.However, a clear ESG concept was proposed by Goldman Sachs in 2007 after integrating environmental, social, and corporate governance factors that investors are highly concerned about.It has since been analysed and implemented by various institutions, researchers, and industries.Specifically for the banking industry, "The Equator Principles" is one of the important ways for international banking institutions to practice sustainable development.This principle mainly focuses on whether banks fully consider social and environmental responsibilities when engaging in financial activities.performance.Still, they also mentioned that ESG has no significant impact on the growth rate of banks [5].
In addition, it is worth noting that there needs to be more literature on the impact of ESG activities on the risk-taking of commercial banks.Yunfei's research found that ESG activities have a risk-mitigation effect on the banking industry.After using the fixed-effect model to analyze the heterogeneity of banks, Yunfei found that the ESG activities of joint-stock commercial banks are better than those of state-owned commercial banks in mitigating risk-taking [6].But the study used data from only 12 banks and did not consider the emergence of regional banks in recent years.Hai For selecting financial indicators, this paper refers to the Z-score used by Laeven and Levine [8] and the NPL ratio used by Xing as the proxy variable for risk-taking [9], respectively.In this paper, Z-score is countered by the formula Z = Volatility of return on assets /(return on assets + Capital adequacy ratio), where the Capital adequacy ratio formula is: weighted risk asset/ total assets, and when calculating the volatility of asset returns, refer to Alberto and Timothy's article, calculate the standard deviation of ROA and each average for rolling five-year time windows of five years [10] -the more significant the z-score, the more dangerous the bank, according to the z-score formula.
Finally, considering the unique nature of commercial banks, this paper also selected some representative data as the control variables in the regression.In general, the four explanatory variables of the regression were the z-score and non-performing loan ratio, the total ESG score from Bloomberg, and the individual E, S, and G scores.The control variables were commercial bank leverage (LR), Capital adequacy ratio (CAR), depreciation and amortization (CFDA), the proportion of female directors (FR), and the average age of directors (MoA).The descriptive statistics derived from the above data are shown in Table 1.
*X represents ESG, E, S, and G.

Results and analysis
Referring to the results of Hai, Shuangyi, and Zifeng's   2) -( 4) show the effects of E, S, and G on the z-score, respectively.
From the regression perspective, only regression (4), the G score, significantly impacts the z-score, while E and S regression results are insignificant.The G coefficient in regression ( 4) is -0.016 and is significant at the 10% level, indicating that an increase in G can significantly reduce the z-score.In regression (4), G significantly affected NPLR with a regression coefficient of -0.209, which was significant at the 1% level.4 shows the effect of ESG and its sub-scores on the z-score after excluding the sample of local banks.
In regression (1), the coefficient of ESG was -0.018, and the corresponding t-value was -3.95, which was significant at the 1% level, indicating that an increase in ESG would decrease the z-score.Compared with Table 2, the regression coefficient of ESG in this table is more significant, and the effect of ESG on the z-score is larger and more significant.In regression (3), the influence of S on the z-score is significantly negative, and the corresponding coefficient is -0.009, which is significant at the 1% level.

Conclusion
This Although several banks worldwide have joined the Equator Principles because the Equator Principles are not fully compatible with the laws and regulations of developing countries, as of 2012, only the Industrial Bank of China has implemented the Equator Principles [2].By the end of 2021, the number of Chinese banks joining the Equator Principles has increased to eight, including Industrial Bank, Bank of Jiangsu, Huzhou Bank, Chongqing Rural Commercial Bank, Mianyang Commercial Bank, Bank of Guizhou Chongqing Bank, Fujian Strait Bank.It is indisputable that the Equator Principle has become the international standard in project financing.China has also responded positively in recent years to make the equator principle localized, and commercial banks are actively taking effective action to implement green finance objectives.According to the current situation of China's enterprises, the relevant information disclosure mechanism rules mainly for listed companies.China's listed banks are divided into large state-owned commercial banks, joint-stock commercial banks, rural commercial banks, and urban commercial banks.The number of listed bank companies in China has increased recently, especially the urban and rural commercial banks restricted by local policies.And since the collapse of the Reyman Brothers in 2008, many countries have seen how their financial markets have been affected by the hostile climate in the United States; in particular, the social impact of big banks is becoming more critical to all stakeholders [3].However, in recent years, the research on the relationship between ESG and Commercial banks mainly focuses on the impact of ESG activities on the performance of commercial banks.For example, Azmi and Hassan studied 251 commercial banks from emerging economies.They concluded that the level of ESG activity could improve the performance of commercial banks; they also note that this increase decreases marginally after ESG activity reaches a certain height [4].Haoxu and Min conducted a regression analysis on panel data of 38 Chinese A-share listed bank companies from 2018 to 2020.They came to similar conclusions as Azmi and Hassan, that is, the performance of ESG responsibilities (corporate governance aspects) positively impacts banks' financial , Shuangyi, and Zifeng used data from 2009 to 2021 to analyze heterogeneity among state-owned, joint-stock, and local banks.Based on Yunfei's conclusion that ESG has the same effect on the risk-taking of state-owned and joint-stock banks, they extra conclude that ESG activities' effect on local banks' risk-taking is insignificant [7].However, considering that only ESG overall ratings and three categories of banks were analyzed in the heterogeneity analysis, the study was not split into separate E, S, and G analyses; And the ESG investment data in their study is divided into the processing method may have some limitations.Therefore, this paper attempts to combine the results of previous research, a specific study of ESG and E, S, g sub-activities of China's A-share different types of listed bank risk-taking differences.2 Data and method This paper selects the panel data of China's listed bank companies from 2018 to 2022 as the research sample, adopts the STATA regression analysis method, and uses the natural classification of listed bank companies as the control group; this paper studies the relationship between bank risk-taking and ESG activities and sub-activities of E, S, and G. Considering that most local listed banks have a short listing time and less information about ESG, this paper divides 42 listed banks in China into two categories, the first category is composed of large state-owned banks and joint-stock banks, from now on referred to as large and medium-sized listed banks (a total of 15); the second category excluded the bank does not have Bloomberg ESG-related rating index, consisting of urban commercial banks and rural commercial banks subject to local policies, from now on referred to as a locally listed banking company (10 in total).All the data in this article are collected from Bloomberg.First, although the ESG index has many choices, considering the quantitative index is more favorable for regression analysis, this paper selects the Bloomberg ESG Index, which has a complete two-level index system and scores every single item of E, S, and G.Secondly, according to Basel III, the risk of commercial banks can be divided into endogenous risk and exogenous risk.Considering that the stock price volatility used by some scholars as a market index has a series of drawbacks (including, but not limited to, because of supervision and other reasons, the authenticity of the information disclosed by the market index in China is in doubt, and the stock price volatility has hysteresis to the risk-related events), in the end, this paper does not use market risk indicator for regression, but focuses on financial indicators.
analysis, ESG investment plays a more vital role in the risk-taking of joint-stock commercial banks through reputation spillover eff.This study proposes that the relationship between ESG activities and the risk-taking of commercial banks may differ due to the different types of banks.This paper conducts a regression analysis on the risk-taking and ESG grade of 25 listed banking companies with ESG scores from Bloomberg.In addition, based on theoretical analysis, considering that the particularity of the banking industry may lead to significant differences between the sub-activities E, S, and G of commercial banks and the Assumption of risk, this paper conducts regression analysis on the relationship between the three sub-activities E, S and G and Assumption of risk.Tables2 and 3report the regression results between ESG and ESG sub-activities with the z-score and non-performing loan ratios of all 25 listed banking companies with information disclosure, respectively.Tables4 and 5report the regression results between ESG and ESG sub-activities with the z-score and non-performing loan ratios of 15 medium to sizeable banking companies.
study focuses on the relationship between the ESG activities of A-share listed banks and bank risk-taking.It explores the relationship between ESG activities and listed banks of different sizes.Furthermore, this study split ESG into individual E, S, and G activities.The results show that the ESG activities of commercial bankscan help ease the risk-taking of commercial banks.The impact of ESG activities on the risk-taking of commercial banks will be affected by the heterogeneity of banks; that is, compared with local banks, ESG activities have a more significant impact on the risk-taking of large and medium-sized commercial banks.In addition, the separate E, S, and G activities are also different for the degree of risk-taking of commercial banks.In the bank-wide sample regression analysis, G activities, that is, the degree of risk-taking of commercial banks for shareholders, the liability of creditors, and regulators, are significantly related to the risk-taking of commercial banks.In the regression analysis, excluding the sample of local banks, S activity, that is, the social commitment of commercial banks, is significantly related to the risk-taking of commercial banks.However, the results of this study are slightly different from those of other studies due to the method of ESG scoring and the selection of control variables.However, there is no doubt that ESG activities significantly impact the risk-taking of a-share listed banks.Based on this research, active and effective development of ESG-related activities can help huge and medium-sized commercial banks reduce risk-taking.Therefore, this research suggests that commercial banks should carry out ESG-related activities to maintain long-term sustainable development.

Table 1 .
Descriptive statistics of each variable.

Table 2 .
The impact of ESG and its sub scores on z-score results (without local bank)In regression (1) of Table2, the coefficient of ESG is -0.008, corresponding to a t-value of -2.32, which is significant at the 5% level, indicating that an increase in ESG will reduce the z-score.Regression (

Table 3 .
The impact of ESG and its sub scores on NPLR results (without local bank)

Table 4 .
The impact of ESG and its sub scores on z-score results

Table 5 .
The impact of ESG and its sub scores on NPLR results