ESG Score Convergence in the Global Financial Sector: Beta-Convergence, Sigma-Convergence, and Club Formation Across Asia, Europe, and the United States

This study examines whether environmental, social, and governance (ESG) scores among financial institutions across Asia, Europe, and the United States are converging toward a common global standard or settling into distinct regional regimes. Using a panel of 843 publicly listed banks and financial firms over fifteen fiscal years (7754 firm-year observations), the analysis applies sigma-convergence, cross-sectional beta-convergence, and a dynamic panel specification with firm and year fixed effects. Within-region ESG dispersion has narrowed significantly in Europe and the United States but widened in Asia, even as all three regions display strong beta-convergence, with laggard firms closing the gap within about a year. A pooled model with region interaction terms and a Chow test, both of which impose the regional grouping in advance, reject the hypothesis of a single global convergence process, a conclusion independently corroborated by a model-free Phillips–Sul log-t test and clustering algorithm, supporting a club convergence interpretation in which European and Asian financial firms gravitate toward a materially higher steady-state ESG level than their American counterparts, whose mean score remains twenty points lower at the most recent fiscal year. Robustness checks across all three regions, including industry subsamples in Europe, developed versus emerging market banks in Asia, and coverage-depth splits in the United States, confirm findings are not artifacts of sample composition. These results imply that benchmarks calibrated to a single global ESG threshold would misclassify firms operating under different regional convergence clubs.