Developing a Sustainable Finance Index and Its Implications on Inter-Intra Banking Sector

• Published in: SAGE open Vol. 14; no. 3
• Main Authors: Malik, Muhammad Shaukat, Irfan, Muhammad, Munir, Samavia
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01-07-2024; SAGE PUBLICATIONS, INC; SAGE Publishing
• Subjects: Banking; Economics; Environmental aspects; Sustainability; sustainable finance; environmental sustainability; social sustainability; banking sector; economic sustainability; Grey Relational Index (GRI)
• ISSN: 2158-2440; 2158-2440
• DOI: 10.1177/21582440241271232

In the contemporary landscape of corporate governance, where organizations are increasingly recognizing the importance of not only generating profits but also contributing to societal progress and environmental preservation, there arises a pressing requirement for a comprehensive financial index that accurately captures these multifaceted commitments. In this study, we introduce a novel sustainable finance index that utilizes the Grey Relational Analysis (GRA) method to comprehensively capture the three fundamental dimensions of sustainability: economic, social, and environmental aspects. The GRA methodology ensures a comprehensive and balanced consideration of each dimension, thereby providing a holistic perspective. The deployment of this index, which encompasses a wide range of criteria, on an extensive 11-year financial dataset (2010–2021) obtained from 21 prominent commercial banks, reveals fascinating and thought-provoking findings. Banks frequently demonstrate intermittent commitments, wherein their pursuit of short-term gains often takes precedence over the imperative of economic sustainability. While some banks have been notable champions of social endeavors, it is concerning to observe that environmental sustainability has unfortunately taken a backseat in the overall banking landscape. This index provides a meticulous assessment of sustainable financial paradigms, ensuring accuracy and reliability. It serves as a valuable resource, enhancing the quality of research and providing corporations with a sophisticated framework to evaluate and enhance their sustainable financial paths.
Plain language summary
We conducted a study with the aim of creating a comprehensive scoring system for businesses, allowing them to evaluate not just their profit-making abilities, but also their contributions to society and the environment. Using a method known as Grey Relational Analysis (GRA), we ensured that three primary areas: economic performance, societal contributions, and environmental protection, received equal emphasis in our scoring system. We then tested this on the financial records of 21 major banks, spanning 11 years from 2010 to 2021. Our findings indicated that while some banks excelled in specific areas, none consistently performed well across all three. For instance, a bank might be actively supporting societal initiatives but might lag in environmental conservation efforts. The significance of our work lies in its potential to guide banks and other businesses in identifying areas of improvement. Additionally, our scoring system can serve as a tool for researchers keen on delving deeper into the field of sustainable finance. However, it’s worth noting that our study has its limitations. Our focus was solely on large commercial banks within a specific timeframe, which means the results might not resonate with smaller banks or other business sectors. Also, while our evaluation method strives for balance, there’s scope for refining it further to cater to the evolving landscape of sustainable finance.