ESG initiatives and financial stability in the Korean financial industry: The moderating role of ownership concentration

Type of the article: Research Article AbstractFinancial firms are emerging as key drivers of sustainable business, shaping development through the entities they choose to finance. The ownership structures and governance mechanisms of these firms can shape sustainability efforts, potentially affecting financial stability through risks and costs of implementation. This study aims to examine the impact of ESG initiatives on the financial stability of Korean financial firms and understand how ownership concentration moderates this relationship. Utilizing a fixed-effects regression model, the study investigates 537 firm-year observations across 53 Korean financial sector firms, including banks, insurance companies, securities firms, and diversified financial services firms, from 2012 to 2023. The analysis reveals that for banks, environmental sustainability initiatives are positively associated with financial stability (coefficient = 0.0017; t = 1.84), while social responsibility initiatives have a negative association (coefficient = –0.0018; t = –2.00). For insurance firms, overall sustainability efforts show a negative relationship with financial stability (coefficient = –0.0061; t = –1.72), driven mainly by the governance dimension (coefficient = –0.0074; t = –2.06). Additionally, in the case of banks, higher ownership concentration diminishes the positive impact of environmental sustainability on financial stability (coefficient = –0.0056; t = –1.90). Moreover, ownership concentration acts as a double-edged sword where its moderating impact varies depending on whether the financial firm is a high or low ESG performer. These findings highlight the importance of firm-specific dynamics in aligning with institutional and societal expectations of ESG while navigating the complexities of ownership concentration as a pathway for financial firms to maintain financial stability. AcknowledgmentThe authors would like to express their sincere appreciation to the Korea Institute of Corporate Governance and Sustainability (KCGS) for generously providing the ESG ratings data for financial firms in South Korea. Their valuable support made these analyses possible.