Trust in banking plays a significant role in promoting financial inclusion. Multinational banks (MNBs) have the potential to enhance trust by adopting sustainable banking practices. We investigate the impact of MNBs' adoption of ESG (Environmental, Social and Governance) practices on trust in banking in 38 developing countries. Using an instrumental variable approach and control function estimation, our findings indicate that sustainable practices by commercial MNBs are positively and significantly associated with increased trust in banking. The results remain consistent across different samples, lending robustness to our findings. By demonstrating the importance of sustainable banking in fostering trust, this study contributes to the limited literature on trust in banking in the global South.
Policy Implications
- Policymakers in the global South should incentivise ESG adoption by MNBs. These sustainable practices can be transformative in repairing trust and building social capital in regions where scepticism towards the banking sector runs high.
- Governments should foster consistency and comparability by establishing a clear set of ESG standards tailored to the global South. This would help MNBs understand and align their practices with region-specific sustainability goals.
- Public and private officials should encourage collaboration by establishing platforms where MNBs, local banks and stakeholders can collaborate on ESG initiatives, pooling resources, knowledge and best practices from the global South.
- Banking officials should be encouraged to initiate or participate in community-based projects or activities that drive civic engagement. Such participation directly ties into building social capital, fostering trust among the public in the global South.
- Banking practitioners should launch public campaigns to highlight the connection between ESG practices and trustworthy banking. This will enable potential customers from the global South to make informed banking choices and increase demand for responsible banking.
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