BRICS banks at the crossroads: ESG lending and tech investment drive stability and growth

Background and Motivation

Amid mounting global concerns over sustainability, financial stability, and rapid technological transformation, banks in emerging markets face growing pressure to adapt. For the BRICS economies—Brazil, Russia, India, China, and South Africa—this pressure is especially acute, given their outsized role in the world economy and unique socio-economic challenges. As these nations strive for economic growth, they also confront environmental degradation, social inequality, and regulatory gaps, all of which intensify the urgency to embed Environmental, Social, and Governance (ESG) criteria and technological innovation into financial practices. China Finance Review International (CFRI) brings you a new article titled “ESG lending, technology investment and banking performance in BRICS: navigating sustainability and financial stability”, which examines how sustainable finance and digital transformation are reshaping the region’s banking sector by analysing their effects on bank risk and profitability.

Methodology and Scope

The study leverages quarterly panel data from commercial banks in BRICS countries between 2015 and 2023. Using fixed-effects regression models, the authors estimate how banks’ exposure to high-ESG firms and their borrowers’ technology-related capital expenditures impact two key metrics: return on risk-weighted assets (RoRWA) and non-performing loans (NPLs). To ensure robust findings, the analysis is further stratified by bank size, assessing whether institutional scale influences the efficacy of ESG and technology-driven lending strategies.

Key Findings and Contributions

• Positive Impact of ESG Lending: Banks that extend credit to high-ESG firms demonstrate improved risk-adjusted returns and reduced default rates.
• Technology Investments Matter: Lending to technologically advanced firms correlates with better bank performance and lower credit risk, especially in volatile periods.
• Small Banks Benefit Most: The risk-mitigating effects of ESG and technology-focused lending are most pronounced in smaller banks, which often face greater resource constraints.
• Empirical Evidence from Emerging Markets: The study bridges a critical gap in sustainable finance literature by providing rare empirical evidence from the diverse and rapidly changing BRICS context

Why It Matters

This research directly addresses the dual mandate facing BRICS banks: promoting sustainable economic growth while safeguarding financial system stability. As emerging markets drive a significant share of global growth, how their banks manage ESG and technological risks will shape not only local economies but also international financial flows and climate action. The study’s novel findings offer timely, actionable guidance for banks and policymakers as they navigate the intersection of sustainability, digitalisation, and risk management.

Practical Applications

• For Researchers: The article opens avenues for further comparative studies between emerging and developed markets, as well as qualitative exploration of cultural and regulatory differences in ESG adoption.
• For Investors: The findings highlight the financial benefits of allocating capital toward high-ESG and tech-oriented banks and borrowers in emerging markets, aligning profitability with sustainability.
• For Policymakers and Regulators: Policy tools such as tax breaks, subsidies, and regulatory adjustments can accelerate sustainable finance and digital transformation. Establishing common ESG reporting and assessment standards will improve transparency, facilitate international investment, and strengthen the overall ecosystem. Support for digital infrastructure—including broadband and cybersecurity—enables widespread adoption of tech-driven banking models.
• For Banks and Financial Institutions: Integrating ESG and technology factors into credit risk frameworks can boost lending efficiency and resilience. Specialised products for high-ESG and tech-driven firms can create new competitive advantages and align portfolios with global sustainability trends. Smaller banks, in particular, are encouraged to deepen their ESG and digital assessment capabilities to improve credit quality and profitability.

Discover high-quality academic insights in finance from this article published in China Finance Review International. Click the DOI below to read the full-text original! Open access for a limited time!