Developing a Sustainable Finance Index and Its Implications on Inter-Intra Banking Sector

Abstract

In the contemporary landscape of corporate governance, where organizations are increasingly recognizing the importance of not only generating profits but also contributing to societal progress and environmental preservation, there arises a pressing requirement for a comprehensive financial index that accurately captures these multifaceted commitments. In this study, we introduce a novel sustainable finance index that utilizes the Grey Relational Analysis (GRA) method to comprehensively capture the three fundamental dimensions of sustainability: economic, social, and environmental aspects. The GRA methodology ensures a comprehensive and balanced consideration of each dimension, thereby providing a holistic perspective. The deployment of this index, which encompasses a wide range of criteria, on an extensive 11-year financial dataset (2010–2021) obtained from 21 prominent commercial banks, reveals fascinating and thought-provoking findings. Banks frequently demonstrate intermittent commitments, wherein their pursuit of short-term gains often takes precedence over the imperative of economic sustainability. While some banks have been notable champions of social endeavors, it is concerning to observe that environmental sustainability has unfortunately taken a backseat in the overall banking landscape. This index provides a meticulous assessment of sustainable financial paradigms, ensuring accuracy and reliability. It serves as a valuable resource, enhancing the quality of research and providing corporations with a sophisticated framework to evaluate and enhance their sustainable financial paths.