The Influence of ESG Practices on Bank Credit: The Moderating Role of Climate Policy Across Countries

This paper investigates how banks’ Environmental, Social and Governance (ESG) performance interacts with national climate policy to shape bank credit, as measured by net loans. Using an unbalanced panel of 389 listed commercial banks from multiple countries over the period 2010–2023, we combine bank- level ESG and financial data with the Climate Change Performance Index (CCPI), a synthetic indicator of the ambition and effectiveness of national climate policy. The results of the two-step System-GMM show that, on average, stronger ESG performance and stricter climate policy are associated with a more cautious expansion of net loans. However, the positive, statistically significant interaction between ESG and CCPI indicates that the adverse baseline effect is attenuated as climate policy becomes more ambitious. Overall, the findings suggest that ESG alone is not a sufficient driver of green credit; its effectiveness as a conduit for sustainable lending critically depends on the broader climate policy framework.