The impact of Knowledge Management on sustainability: the case of European bank sector

Sustainability in the financial sector encompasses integrating environmental, social, and governance (ESG) factors into investment decisions and risk management. This integration not only helps in mitigating sustainability-related risks but also fosters long-term sustainable development. The growing emphasis on sustainability in corporate and investment strategies signifies an increased understanding of the interplay between financial, environmental, and social well-being. As pivotal players in the developmental landscape, banks hold significant potential to expedite a company's sustainability journey by embracing ESG frameworks in their investment decision-making processes. Stakeholders, ranging from investors and policymakers to regulators, increasingly demand enhanced attention to ESG issues within the banking system. Consequently, banks are increasingly pressured to adopt socially responsible practices, ensuring responsible investment decisions. In Europe, regulatory advancements have mandated the incorporation of ESG factors into the credit process. The European Banking Authority (EBA) report in 2021 marked a significant milestone in this direction, requiring alignment across all member countries. Within this regulatory context, the primary objective of the discussed research is to analyze the impact of Knowledge Management (KM) on ESG performance in the banking sector. In this perspective, the study develops in two phases. Initially, content analysis research involves a sample of European listed banks. This entails examining information from annual reports to formulate a Global Index of knowledge management and an ESG index. Subsequently, a regression analysis is performed between the Knowledge Management Global and ESG indexes. Findings from a sample of 32 listed banks reveal that while the disclosure of knowledge management information isn't yet widespread, there's a discernible uptrend in awareness. Moreover, a weak positive association is established between the disclosure of knowledge management information and ESG performance. These insights augment the existing literature and spotlight the absence of a universally accepted framework for knowledge reporting, underscoring the role policymakers could play in endorsing knowledge management disclosure. The study's novelty lies in establishing a robust knowledge management measure, offering an initial framework for this metric. Unlike many prior studies focusing on the broader impact of knowledge management on a bank's performance, this research uniquely zeroes in on its influence on sustainability performance within European banks. Thus, it enriches the body of knowledge in this domain and provides invaluable insights and guidance for researchers and managers alike.