Evolution of Greenium. ESG and the Cost of Equity in the Polish Banking Sector
Evolution of Greenium. ESG and the Cost of Equity in the Polish Banking Sector

Summary/Abstract: Aim: The aim of the study was to examine the impact of Environmental, Social, and Governance (ESG) performance on the cost of equity of commercial banks listed on the Warsaw Stock Exchange, with particular emphasis on the role of individual ESG pillars. Specifically, the study investigated how this relationship dynamically evolves across distinct phases of the energy transition in Poland. Methodology: The empirical analysis was based on panel data covering the period 2012–2024. The cost of equity was estimated using the Capital Asset Pricing Model (CAPM). A two-way fixed effects model with Driscoll-Kraay standard errors was applied, while ESG variables were lagged by one period to mitigate endogeneity concerns. The static baseline specification was extended to include a phase-interaction framework to capture time-varying transition risks. Findings: The static baseline results did not confirm a classical ‘greenium’ for the aggregate ESG score, however an ‘inverted greenium’ was observed specifically within the Social pillar. Furthermore, the dynamic phase-based analysis uncovered a significant structural shift in ESG pricing. The market's assessment evolved from initial indifference (2012–2014), through a period of penalisation where ESG was perceived as a costly burden (2015–2021), to the materialisation of a statistically significant greenium in the most recent, high-intensity energy transition phase (2022–2024). Implications: The findings demonstrate that the financial benefits of ESG engagement in transition-intensive emerging markets are not immediate. Investor perception of sustainability shifts dynamically, from initial indifference, through a compliance cost, to a risk-mitigating asset, depending on the maturity of the regulatory environment and the escalating pressures of the energy transition. This suggests that realizing the financial benefits of ESG investments may require a longer-term strategic perspective. Originality/value: This paper significantly contributes to the literature by demonstrating the non-linear, time-varying nature of ESG pricing in the banking sector. It provides novel empirical evidence on how context-dependent structural constraints and energy transition risks shape the delayed emergence of a greenium in one of the Central and Eastern European markets.

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