Socially responsible banking: Weathering the Covid-19 storm

This paper investigates the impact of socially responsible banking activities on banks' risk profiles, using data from the period of turmoil caused by the Coronavirus (Covid-19) outbreak in Europe. Our findings show that socially responsible banking activities served as a risk-hedging strategy at the peak of the pandemic. Furthermore, we reveal the role of banks' environmental and social engagement in reducing the exposure to country-level Covid-19 cases and public perception using a Google Trends sentiment analysis. Finally, in explaining the ESG-bank risk relationship, we identify a mediating role of the Covid-19 "panic" as a viable economic channel.