Management of the governance and social aspects of <scp>ESG</scp> in the financial industry

Abstract This study investigates how banks adjusted their ESG strategies in response to the heightened governance requirements of the 2010 Dodd‐Frank Act. The findings reveal that banks, particularly those with lower operating performance and higher institutional investor ownership, responded by significantly increasing their focus on governance while reducing efforts in social initiatives. In contrast, non‐bank financial institutions, including shadow banks, exhibited simultaneous improvements in both governance and social performances during the same period. This shift in bank ESG management underscores the trade‐offs involved in regulatory compliance, where focusing on a single ESG pillar, such as governance, may unintentionally detract from other pillars like social. Policy‐makers and regulators should adopt a more balanced approach to ensure that all ESG pillars receive adequate attention for long‐term corporate sustainability.