Abstract This study aims to examine the relationship between bank performance and environmental performance—measured by the Environmental Pillar score—while accounting for shifts in bank performance profiles. The study focuses on the top institutions with high scores on the Environmental Pillar of ESG ratings, questioning whether their environmental performance increases financial performance. This research examines the link between environmental performance and bank profitability, proxied by return on equity (ROE), in the USA, using a sample of 72 commercial banks from 2005 to 2024. The analysis is conducted in two parts. We first compute models of the aggregate Environmental Pillar. Next, we deconstruct this Pillar into its three sub-pillars (Resource Use, Emissions and Innovation). The model estimates show that Environmental Pillar dimensions have both significant and divergent effects. This research contributes to the ESG-banking literature by robustly estimating the impact of Environmental Pillar dimensions on U.S. banks across different return environments. By integrating a linear, nοnlinear, and distribution-specific approach, it provides insights into the trade-offs between ESG environmental engagement and financial performance. In light of this evidence, the policy design at the micro–macro level could be more compatible and flexible with respect to the environmental goals-financial performance nexus.
Kapetanakis et al. (Mon,) studied this question.