The Relationship between ESG Scores and Firm-Specific Risk of Eurozone Banks

Round 1

Reviewer 1 Report

The paper is devoted to analysis of the relationship between CSR scores and idiosyncratic risk of European banks. 

In general the topic is interesting and up-to-date. The paper builds on proper literature and the empirical analysis is sufficient.

The first issue the authors have to work on is related to the main definitions and terms. In the paper the terms ESG and CSR are used interchangeably. However, it is well know from previous literature that CSR performance does not contain the governance pillar. At the same time all hypotheses and the Asset4 index are built over three pillars - E, S and G. In this case my suggestion is to rewrite the theory from the perspective of ESG and not CSR as there is currently a mismatch.

The paper builds on legitimacy and stakeholder theory. The theories are properly used, however, the literature review and justification could be done more thoroughly. 

The authors test the data over the period 2002-2019 during which there was the Global financial crisis. However, not deep analysis is performed to investigate how this macroeconomic shock influenced the empirical results. 

It is not clear why only 31 banks from 10 EU countries are chosen as Thomson Reuters includes data about much more banks and more countries. For example, in Di Tommaso and Thornton (2020) analyze 81 banks from 19 EU countries with the help of Asset4 ESG score. Therefore, the sample should be extended.

Di Tommaso, C., & Thornton, J. (2020). Do ESG scores effect bank risk taking and value? Evidence from European banks. Corporate Social Responsibility and Environmental Management, 27(5), 2286-2298.

 

It's not clear why the size of banks through ln of total assets is not incorporated in the control variables.

As the sample includes banks from 10 countries, some country-level factors reflecting the economic situation should be incorporated as they might influence bank risks.

The results of the study should be better linked to the theoretical basis.

 

Author Response

Please see the attachment.

Author Response File: Author Response.pdf

Reviewer 2 Report

 

This research contributes to the development of the literature by analyzing the effect of CSR on idiosyncratic banking risk.

The results presented by the authors support the argument of the previous literature, which found a risk-reducing relationship between the environmental performance of banks and risk-based accounting measures due to their high reputation.

The paper has a clear structure, and we recommend the authors connect the citations to references by reference to the template of the Sustainability journal.

Author Response

Please see the attachment

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

The paper has improved and some critical aspects have been fixed.