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Submission Information

Author Name Shraddha Thakur

Title Does Merger and Acquisition (M&A) Improves the ESG (Environmental, Social
and Governance) Practises of the Indian Commercial Banks? - An Exploratory
Approach
Paper/Submission ID 1439576
Submitted by thakurshraddha1218@gmail.com
Submission Date 2024-02-16 14:00:51
Total Pages 8
Document type Research Paper

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 Does Merger and Acquisition (M&A) Improves the ESG (Environmental, Social and Governance)
Practises of the Indian Commercial Banks? - An Exploratory Approach

Shraddha Thakur
Research Scholar, Department of Commerce, University of Lucknow, Lucknow.

Prof. Arvind Kumar

Professor (Former-Head and Dean), Faculty of Commerce, University of Lucknow, Lucknow

Abstract
Mergers and acquisitions (M&A) are the important strategy for companies to increase market share, improve
competitiveness, and diversify. The M&A activity generates significant financial flows in global capital
markets annually. Taking over a target organization with a strong ESG (Environment, Social and Governance)
record may enhance a company's image and decrease corporate risk. Indeed, organizations with good
sustainability practices generally have great perceptions and minimal legal risk to comparatively evaluate the
ESG practises of the Indian bank in pre- and post-merger and acquisition. The sample is Canara Bank, PNB,
Indian Bank and Union Bank. The study employed the content analysis to examine the ESG practises in pre
and post M&A of the selected bank. It is concluded that mergers and acquisitions strengthen Indian
Commercial Bank's ESG practices. Furthermore, the study social pillar (which includes the following drivers:
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human rights, working conditions, health and safety, and career development and training) is the most
important sustainability dimension for improving M&A financial performance by addressing issues of cultural
friction and brain drain. The that Indian banks should standardize their non-financial reporting and not confine
BRR disclosures to regulatory needs.
1
Key Words: ESG (Environmental, Social and Governance), Merger and Acquisition (M&A), bank, improves,
competition.

INTRODUCTION
Mergers and acquisitions (M&A) are the important strategy for companies to increase market share, improve
competitiveness, and diversify. The M&A activity generates significant financial flows in global capital
markets annually. The crucial issue therefore arises: can M&A boost acquirers' ESG practise? Taking over a
target organization with a strong ESG record may enhance a company's image and decrease corporate risk.
Indeed, organizations with good sustainability practices generally have great perceptions and minimal legal
risk (Gillan et al., 2021; Franklin,2020).

The financial sector is at a turning point. With rising competition, banks are focussing on providing a smooth
digital experience. While these increasingly integrated digital solutions pave the door for new prospects, banks
must demonstrate their global sustainability. Today, banks are appreciated not just for their innovations, but

1
also for their ability to adopt ESG principles. Banks guaranteeing corporate social responsibility and driving
the global shift away from carbon-emitting businesses.

ESG in banking is the study of environmental, social, and governance concerns in the banking business. It
entails assessing investments and activities on the environment, society, and corporate governance. ESG is
critical since these issues and components are inextricably linked and form an essential aspect of the banking
system. As Environmental, Social, and Governance (ESG) transitions from optional to mandated, the first step
is to prioritize expenditures to ensure long-term growth. For example, each procedure, including client
onboarding, data processing, fraud detection, customer accounting, money lending, and regulatory compliance
must comply with ESG standards. Thus, banking partners and investors are seeking for solutions to improve
procedures for successful ESG adoption. Every bank is accountable for safeguarding the environment, creating
a diverse society, and maintaining strong governance.

ESG (Environmental, Social, and Governance) has become an important consideration for banks, impacting
their operations and influencing investment decisions. Understanding critical for banks seeking sustainability
performance and attract new customers and investors. With ESG ratings increasingly functioning as a
benchmark, banks must prioritize investing in infrastructure and procedures to meet ESG standards. By doing
so, banks demonstrate their commitment to achieving industry standards and acquire the trust and confidence
of potential customers. ESG-compliant banks have been shown to be less fragile and more stable, and a
commitment to lowering the environmental impact of banking operations may assist banks in addressing

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pressing social concerns that require novel approaches. Following this key paradigm change, ESG banking
can begin linking critical business services to climate adaptation and resilience.

RESEARCH GAP

Despite various previous studies on ESG practises, bank performance and merger& Acquisition but still no
one try to made an attempt to answer the question that merger and acquisition will be responsible for improving
ESG practises in the banking industry The studies conducted to examine ESG practises performed by the
Indian banking industry. As a result, the current study will provide answers to previously mentioned issues.

OBJECTIVES OF STUDY

1. The primary objective to examine ESG practises of the Indian bank in pre- and post-Merger and
Acquisition (M&A).
2. To identify the motives behind the adoption of ESG practises in the Indian bank.
3. To keep a track record of recent trend in relation ESG practises in the Indian Bank.

RESEARCH METHODOLOGY

Sources of Data Collection: Entirely based on analysis of secondary data in terms of sustainability reports,
annual reports, CSRreports and BRRs of the sampled banks.

Period of Study: The period has been bifurcated into sub head is pre and post M&A. As the merger take place
in year 2020.

Period of Study

Pre Merger and Post Merger and

Acquisition (M&A) Acquisition (M&A)

2017-19 2021-23

Sample Profile: The sample comprises four set of the acquirer bank- Canara Bank, PNB (Punjab National
Bank), Indian Bank and Union Bank.

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Research Design: Content analysis is employed. The content analysis is the qualitative research instrument
to analyse the extent of information available. In the present study, the researcher employed 0 to 10 rating
scale to quantify the piece of information available in bank’s report.

Statistical Tool: The study employed paired t test to comparatively analyse the variation of the ESG practises
in the pre and post-merger and acquisition (M&A) of selected bank.

Limitation of Study:

 The reliability in relation to study is entirely based on bank’s sustainability and annual report.
 The study employed the content analysis which is qualitative.
 The study takes into six years consideration i.e., three years prior to M&A and three years after M&A.

DATA ANALYSIS

In each of the core parameter i.e., E (Environment), S (Social) and G (Governance) there is five each sub
parameter has been postulated to analyse the working of bank in pre and post M&A of the selected bank which
are as follows:

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 Table No.1: Comparative Analysis of ESG Practises (Mean) in Pre and Post M&A.
Indicators on Sustainability Canara Bank Canara Bank PNB Pre PNB Post Indian Bank Indian Bank Union Bank Union Bank
Dimensions
Pre-M&A Post M&A M&A M&A Pre-M&A Post M&A Pre-M&A Post M&A
(2017-19) (2021-23) (2017-19) (2021-23) (2017-19) (2021-23) (2017-19) (2021-23)

A. Environmental Dimensions
Reducing carbon emission 0.67 9.33 1.33 9.00 0 9.00 2.00 8.00
environmental risk assessment 0.33 9.33 0.67 8.66 0 8.33 1.33 7.66

Reducing GHG emissions 0.67 10.00 2 9.33 0 9.33 0.66 8.33

Adopting EMS 0 8.00 0 9.00 0 8.33 0.33 7.66
Environmental audit 0 9.33 0 9.66 0 8.67 0.66 7.68
B. Social Dimensions
Programs on financial inclusion 1.00 9.66 2.00 9.00 2.00 9.00 1.33 8.00
Training & Development 1.66 8.66 2.00 10.00 1.66 9.33 2.00 10.00
programs
Donations during disaster 1.00 9.66 7.66 10.00 2.33 8.66 2.33 10.00
Data Privacy and Cybersecurity 5.00 9.00 16.67 9.00 2.00 8.33 2.66 10.00
Preservation of Human capital 0.67 9.33 4.33 9.33 1.66 9.00 2.33 10.00
C. Governance Dimensions
Appointment of executive-level 4.33 10.00 6.00 9.66 3.33 9.00 3.66 10
sustainability officer
Sustainability/business 5.00 10.00 7.66 10.00 0.66 10.00 4.00 9.66
responsibility committee
Policy on anti-corruption 0.33 6.33 1.33 7.33 0.00 6.67 0.33 7.33
Code of Ethical Conduct 7.00 9.00 7.66 9.00 4.00 8.66 5.33 8.33
Reporting unlawful behaviour 8.33 8.66 6.33 10.00 4.33 9.00 7.33 8
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*Source: Author’s Compilation from the annual report through content analysis

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The above Table No. 1 explains the ESG (Environmental, Social and Governance) practises in Indian
commercial bank in pre and post M&A. It is evident from the Table No. 1 that these acquirer bank has
certainly improve the ESG practise of bank in the post-merger comparatively than before merger which may
be resulted due to bank’s enhanced capabilities and focuses on more diversified areas so benefit to society
along with legally ethical organisation.

HYPOTHESIS TESTING

 H0: There is no significant difference of the ESG practises mean in the pre and post merger and
acquisition of the selected bank.
 H1: There is significant difference of the ESG practises mean in the pre and post merger and
acquisition of the selected bank

Table No.2: Paired Samples t-test of the ESG practises in pre and post M&A of the selected Bank

Paired Differences t df Sig.

Mean Std. Std. Error 95% Confidence Interval (one-

Deviation Mean of the Difference tailed)

Lower Upper

Pre - Post -6.56333 1.78617 .51562 -7.69821 -5.42845 -12.729 11 .000

Computation From the SPSS tool version 20.

The Table No.2 represents the Paired Samples t-test of the ESG practises in pre and post M&A of the selected
Bank. The paired t-test was conducted to find the has been observed in the mean value of ESG practises with
reference to pre and post M&A of the selected bank. The one tail p-value is 0.00 and one tail t-value is -
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12.729. It indicates that there is statistically significant difference has been observed of the selected bank with
1
reference to ESG practises adoption in the Indian commercial banking sector. Therefore, there is sufficient
evidence to reject null hypothesis and accept alternate hypothesis.

FINDING CONCLUSION AND SUGGESTION OF STUDY

Finding:

(E) Environmental Dimension: The environmental dimension of the selected bank has been majority followed
by Punjab National Bank in pre and post M&A. On the other hand, Indian Bank still recorded the lowest
record of following the environmental dimension still after M&A due to the failure to integrate the
environment with the banking operation and committed towards the banking operations.

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  (S) Social Dimension- The PNB recorded the highest record in contrast with Canara Bank recorded
the lowest record of the social dimension. It also evident from the same Table that Union Bank was
the maximum responsive while Indian bank is least responsive towards social dimension among all
selected bank after M&A. The reason behind the such banks is least responsive towards social
dimension that financial stringency and inadequate government support.
 (G) Governance Dimension: Before M&A, the governance dimension of PNB the highest in contrast
with Union Bank recorded the lowest governance practises among all selected bank. But after M&A,
Union Bank the highest governance practises while Canara Bank witnessed the lowest record of the
governance practises.

Conclusion of Study: In today's dynamic market, the banking sector has a tremendous task: fulfilling the
ever-increasing demands of environmental, social, and governance (ESG) challenges. ESG has evolved as a
significant component of conducting business for banks, going beyond their own operations to activities they
fund. The emergence of 'green funding' demonstrates this tendency, which encourages firms in the BFSI
ecosystem to support sustainable development efforts associated with the UN Sustainable Development Goals.
Embracing ESG is no longer optional; it has become a top priority for corporations across industries, with the
financial services industry playing a critical role in driving this change. Banks have realized that sporadic
pledges to ESG principles not only pose challenges, but also represent which could risk their very existence.

Mergers frequently increase the scrutiny of corporations' environmental, social, and governance (ESG)
standards. Investors, consumers, employees, the media are highly interested engrossed in the environmental,
social, and governance ramifications of business consolidations.

Many acquirers have responded by concentrating on ESG risk reduction during the post-merger integration
(PMI) phase. PMI provides chances for value creation by defining more ambitious ESG goals, developing
new operating models, and integrating a sustainability-conscious culture in the merged firm. To maximize
benefit, businesses must seamlessly integrate their ESG strategy throughout the PMI process and ensure that
their aims and roadmaps are matched. They must also allow value generation by utilizing effective
measurements and data, suitable reporting standards and governance methods.

Integrating ESG techniques swiftly and vigorously will increase the chances of their effectiveness and provide
a strong signal about the combined entity's commitment to promoting the ESG agenda, it is determined that
mergers and acquisitions strengthen Indian Commercial Bank's ESG practices. Furthermore, the study
2
discloses the social pillar (which includes the following drivers: human rights, working conditions, health and
safety, and career development and training) is the most important sustainability dimension for improving
M&A financial performance by addressing issues of cultural friction and brain drain.

Suggestions of Study: Based on finding and conclusion of study, the following suggestion has been drawn:

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  Banks in India should standardize their non-financial reporting and not confine BRR disclosures to
regulatory needs.
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 To attract ESG investors, companies must consider all dynamic area of sustainability and report
effectively.
 The Reserve Bank of India to develop the ESG index which measure the contribution made by bank
in these three dimensions is quantifiable.
 Banks should provide information underreported areas, including the steps undertaken to handle
corruption, customer privacy and workforce’s diversity.
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