Determinants of the quality of banks’ non-financial reporting

Abstract

This article examines the determinants of the quality of banks’ non-financial reporting in the context of the growing role of environmental, social, and governance (ESG) factors in ensuring financial resilience and the long-term stability of the banking sector. It is substantiated that non-financial reporting is transforming from a purely informational tool into an integral component of corporate governance and non-financial risk management systems. Significant heterogeneity in the quality of non-financial disclosure between international and Ukrainian banks is identified, manifested in differences in the completeness of ESG indicators, measurement methodologies, and the degree of their integration into financial decision-making.

The purpose of the study is to identify and quantitatively assess the key determinants of the quality of banks’ non-financial reporting based on an analysis of the relationship between environmental, social, and governance ESG indicators and the financial characteristics of banking institutions under conditions of crisis shocks and regulatory transformations.

Research results. An empirical analysis of quarterly data from 10 Ukrainian and 10 international banks for the period 2020–2024 shows that the decisive determinants of non-financial reporting quality are the governance component of ESG, particularly the level of compliance with international disclosure standards, as well as environmental indicators related to the structure of the loan portfolio. It is established that banks with formalized ESG procedures are characterized by lower credit risk, higher financial stability, and lower volatility of financial indicators. While international banks demonstrate systematic integration of non-financial reporting into their business models, Ukrainian banks during the crisis period of 2022 exhibited a predominantly compensatory role of the social ESG component, which was disclosed in a fragmented manner.

Conclusions. The quality of banks’ non-financial reporting is determined not by the number of declared ESG initiatives, but by the degree of their institutionalization within corporate governance and risk management systems. Improving the quality of non-financial disclosure contributes to strengthening banks’ financial stability, reducing information asymmetry, and increasing trust among investors and regulators. For Ukrainian banks, key priorities remain the harmonization of approaches to non-financial reporting, the expansion of quantitative ESG disclosures, and the strengthening of the governance component of ESG as a foundation for enhancing the overall quality of non-financial reporting.