From Pledge to Practice: How Commitment to Climate Change Shapes Banks’ Environmental Disclosure

Abstract

The global pursuit towards net-zero has intensified the demand for corporate transparency, with environmental disclosure emerging as a cornerstone of accountability. While scholarly attention has traditionally gravitated towards high-emitting manufacturing sectors, the banking industry occupies a unique yet underexamined position in the climate arena. Banks, despite having negligible direct emissions, are substantially exposed to climate risk through their lending portfolios, i.e., Scope 3 emissions, that can give rise to reputation damage, stakeholders' backlash, or regulatory attention if left unaddressed. However, enhancing environmental transparency often acts as a proactive pathway to mitigate such risks, signalling both responsibility and resilience. Using a panel dataset of the NIFTY Bank Index from 2013-2024, the present study seeks to examine the impact of bank climate commitment on their environmental disclosure by employing a Panel Corrected Standard Error (PCSE) method due to its effectiveness in handling heteroscedasticity and autocorrelation among the data. The results demonstrate that banks with a stronger commitment to climate change are significantly more likely to enhance environmental disclosure, thereby meeting stakeholder expectations and regulatory demands and aligning with sustainability imperatives. Accordingly, bank size significantly moderates such a relationship. Robustness checks using the Instrumental Variables Two-Stage Least Squares (IV 2SLS) model further validate the same. By positioning climate commitments as a critical lever for improved environmental reporting, this study directly contributes to advancing climate goals under SDG 13 by providing insights for regulators, policymakers, and financial institutions committed to charting a forward-looking path toward sustainable transformation.