Adoption of Sustainable Development Goals in the Banking Sector Concerning the Risk of Banks

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The proposal of sustainable development goals (SDGs) by the United Nations has motivated the banks to implement sustainability practices for sustainable banking and long-term survival. Besides analyzing the impact of these SDGs on the financial performance of the banks, analysis of relationship between the SDGs and the risk of the banks has also been considered vital to see the future uncertainty position. Therefore, the current study fills the gap by investigating SDGs link with the risk of banks especially concerning the Asia Pacific region. The main hypothesis of this study is to analyze the impact of the adoption of SDGs on the risk of the banks. The economic, social, and environmental indicators proposed by the UN’s statistical division are measured by SDGs. For this purpose, a variable ESE index was constructed in this study Furthermore, a partial equilibrium model was constructed to see the moderating impact of bank size and the ESE index. Panel data from 45 banks were collected from the Asia Pacific region. Data was analyzed through two-step system GMM technique. A separate analysis of economic, social, and environmental indicators were also deployed to study the impact of risks of banks in sustainable banking. First it gives insight that adoption of SDGs is important for risk reduction. Secondly large banks must be vigilant in the adoption of SDG as this adoption does not significantly minimize the risk in large banks.. ESE index construction is the novelty of this study.