The sustainability-linked discussion has gained international importance, with the banking sector being an essential pillar of the new economy, particularly through channeling financial resources to environmentally friendly economic activities. It is, however, still unclear if ESG is profitable, both for the economy and banks. This paper aims at filling this gap by presenting, from a macroeconomic perspective, the impact of ESG efforts and the banking sector’s contribution to a sustainable economy. Using panel regression models with fixed effects, the study investigates the impact of ESG factors and banking activity on economic growth. The results show a negative relationship between country-level ESG scores and economic growth, both in the short and long run, while increased financial intermediation by the banking sector, used as a proxy of potential green lending activity, does not necessarily enhance economic growth. Through delving into the interplay between the ESG score, economic development, and banking activity, this research could serve as a discussion point for economists, bankers, and policymakers when designing the economic and financial strategies for transitioning to a green economy.

As we are witnessing a shift of paradigm from traditional economic growth towards sustainable development, backed by United Nation’s Sustainable Development Goals call to action, the concept of Environmental, Social and Governance (ESG) has been integrated in almost all aspects of the economy. Firms are probably the category of stakeholders towards the most expectations have been made for them to do better in terms of ESG. Significant scrutiny is being put on firms activating in traditionally emission-intensive sectors however, one cannot deny the aspect that the polluting sectors of economy have been the main pillar of economic growth since the industrial revolution. The current research aims at studying in what way the ESG performance of polluting firms is backed by improved financial performance and whether greening these firms leads to a trade-off or a win-win situation. By doing so, the paper aims at filling a gap in the existing literature as there is significant evidence concerning the relationship between ESG and financial performance in general, while a limited number of studies focus on firms activating in emission-intensive sectors. We perform the analysis using panel data regression models for a set of 138 firms registered across the European Union and over a period of 14 years. We look at financial performance from both a profitability and as well as market value perspective and the findings indicate that improvements in governance and social performance positively influence return on assets (ROA) and return on equity (ROE), while environmental performance, as well as the aggregated ESG score, has a limited impact, particularly in the case of Tobin’s Q. The study brings valuable insights to both business actors and policymakers by highlighting that the social and governance goals can be attained without sacrificing financial performance, while greening polluting firms may be perceived as burdensome and could imply financial trade-offs.

There is a long debate among academics and professionals on the effectiveness of a leaning against the wind policy in which Central Banks raise interest rates more than it would be necessary to ensure price stability by looking into residential real estate prices when setting their monetary policy. Though the use of a Bayesian Vector Auto Regressive (BVAR) model, this paper aims at contributing with answers related to this paradigm by studying the impact of monetary policy on house prices in Romania and analyzing the potential opportunity cost that such a decision may have on economic welfare in the short run. Using both a Cholesky and a sign restriction identification, the results indicate that a monetary policy shock aimed at raising the interest rate leads to a decrease in house price dynamics. It was also noticed that accelerating mortgage lending leads to an increase in house price growth rates. Output dynamics react negatively to the same monetary policy shock, but with a smaller magnitude compared to the change in house prices. The results could justify Central Banks’ consideration of house prices when setting up interest rates, but they must be analyzed in conjunction with the potential negative impact on economic growth.