Environmental, Social, Governance (ESG) Factors and Stock Price Performance of Listed Deposit Money Banks in Nigeria

Abstract

Stock price performance of Deposit Money Banks (DMBs) in Nigeria represent the quality of investment financial decisions made by directors and management. However, stock price of Nigerian banks has remained volatile despite huge investments in Environmental (ENV), Social (SOC), Governance (COG) (ESG) factors. Extant literature has shown how ESG initiative affect stock price of companies. Stock price volatility of Nigerian banks could be attributed to lack of understanding of importance of ESG initiatives by investors.  This study therefore investigated the effect of ESG factors on stock price performance of DMBs in Nigeria. This study adopted ex post fact research design. The population for this study consists of all 737 deposit money banks (commercial and microfinance banks) purposively selected based on inclusive criteria. Time series and cross-sectional data were obtained from published audited financial statements. The validity and reliability of data is based on audited financial statements. Descriptive and inferential (panel data and granger causality) statistics at 5 per cent level of significance. Panel data regression result showed that ESG factors exerted joint significant effect on stock performance (adj. R2 = 0.36, F (4,38) = 18.34, P = .00). Specifically, ENV had significant negative effect on stock performance (β= -0.23, t= -3, p = .00); SOC exerted insignificant negative effect on stock performance (β= -0.17, t= -1.67, p = .09); COG had significant negative effect on stock performance ((β= -0.87, t= -3.34, p = .00). The study concludes that ESG factors significantly affect the stock price performance of deposit money banks in Nigeria. The study recommended that Nigerian banks should improve their ESG disclosure practices by adopting global sustainability reporting standards. Banks should develop strategies to mitigate the financial burden of ESG compliance by adopting cost-effective and revenue-generating environmental and governance policies.