The Current Landscape of ESG Adoption in U.S. Banking Institutions

Copyright © ISRG Publishers. All rights Reserved. DOI: 10.5281/zenodo.17971324 279 ISRG PUBLISHERS Abbreviated Key Title: Isrg J Econ Bus Manag ISSN: 2584-0916 (Online) Journal homepage: https://isrgpublishers.com/isrgjebm/ Volume – III Issue - VI (November-December) 2025 Frequency: Bimonthly The Current Landscape of ESG Adoption in U.S. Banking Institutions Nhung Do Cam1* , Ha Do Thi Thu2 1 Vietnam Maritime University 2 Banking Academy of Vietnam, Hanoi, Vietnam Contact details: Banking Academy of Vietnam, 12 Chua Boc Street, Dong Da District, Hanoi, Vietnam 100000 | Received: 14.12.2025 | Accepted: 15.12.2025 | Published: 18.12.2025 *Corresponding author: Nhung Do Cam Vietnam Maritime University 1. Introduction The rapid evolution of the regulatory framework for sustainability and climate-related financial risk in the United States has intensified expectations for transparency, risk management, and governance across the banking sector. As federal, interagency, and state-level regulations increasingly mandate climate-related disclosures and introduce supervisory expectations, understanding how U.S. commercial banks respond to these requirements has become an urgent empirical question. Although many new policies have been introduced (from the TCFD recommendations to the SEC’s 2024 Climate Disclosure Rule), there is still limited evidence on how these regulatory pressures actually affect banks’ ESG performance. To address this gap, the present study analyzes Abstract This study examines the evolution of ESG adoption in the U.S. banking sector by integrating regulatory developments with empirical evidence from S&P Global ESG scores for more than 200 commercial banks over the 2014–2024 period. The analysis highlights how major policy milestones, such as the TCFD recommendations, net-zero commitments, the Interagency Climate Principles, and the SEC’s 2024 Climate Disclosure Rule, have reshaped disclosure expectations and influenced ESG scoring trajectories. Using trend analysis and cross-sectional comparison, the study identifies a persistent performance gap between Global Systemically Important Banks (G-SIBs) and regional banks, with G-SIBs exhibiting stronger ESG outcomes driven by superior governance structures and more advanced reporting capacity. While regulatory tightening initially exposes data gaps and leads to short-term declines in ESG scores, it ultimately supports more consistent climate-risk management and improved sustainability practices. The findings offer timely insights into the uneven progression of ESG integration within U.S. banking. Keywords: ESG, sustainability, bank, US banks. Copyright © ISRG Publishers. All rights Reserved. DOI: 10.5281/zenodo.17971324 280 S&P Global ESG scores for more than 200 U.S. commercial banks over the 2014–2024 period, thereby offering a comprehensive, decade-long assessment of ESG adoption under tightening regulatory conditions. The analysis incorporates both trend-based evaluation and cross-sectional comparison, distinguishing Global Systemically Important Banks (G-SIBs) from regional banks to highlight structural differences in ESG maturity, disclosure capability, and institutional response to policy developments. By integrating regulatory context with empirical scoring patterns, the study provides timely insights into the evolving landscape of ESG implementation in U.S. banking and sheds light on the uneven progression toward standardized, data-driven sustainability practices. 2. Regulatory Framework for ESG in the United States The ESG regulatory framework in the U.S. has evolved rapidly, generating new and increasingly stringent obligations for publicly listed institutions, including commercial banks. This framework is structured across three regulatory layers: (i) federal climatedisclosure rules, (ii) prudential supervisory guidance issued by safety-and-soundness regulators, and (iii) state-level legislation and rulemaking. These layers differ markedly in enforceability: federal and state rules carry binding legal effect, while prudential guidance primarily reflects supervisory expectations applicable in examinations and ongoing oversight. (1) Federal disclosure rules. The most consequential instrument is the SEC’s 2024 Climate Disclosure Rule, which requires public companies to report material climate-related risks, governance structures, strategic implications, transition planning, and quantified financial impacts arising from climate factors (SEC, 2024). The rule further mandates disclosure of material Scope 1 and Scope 2 GHG emissions, supported by independent assurance, and requires firms, including banks, to itemize climate-related costs, losses, and capitalized expenditures when such items exceed 1% of pre-tax income. This framework aims to enhance comparability, reliability, and investor protection in climate-related financial disclosures. (2) Prudential supervisory guidance. In parallel, the FED, OCC, and FDIC have strengthened climaterisk oversight through transition-risk modules and climate-scenario analysis (CSA). These efforts culminated in the Interagency Principles for Climate-Related Financial Risk Management (FED, 2023; FDIC, 2023), which articulate expectations for board governance, strategic planning, risk-limit setting, data architecture, measurement, reporting, and scenario analysis for large banking organizations. Although not legally binding, these principles function as de facto supervisory standards. (3) State-level legislation. ESG requirements vary significantly across states, but California’s SB 253 and SB 261 represent the most comprehensive mandates, requiring large firms to disclose GHG emissions (Scopes 1–3 in phases) and to produce biennial climate-risk reports from 2026– 2027 (California Legislature, 2023b, 2023a). These rules have substantial implications for commercial banks operating in the state. Except for California, no other state has adopted climate-disclosure rules with similar breadth. Instead, states use softer measures: New York issues guidance for banks and mortgage lenders; Illinois and Maryland require public funds to consider sustainability or climate risks; and Colorado asks insurers to report climate risks (Illinois General Assembly, 2019; Maryland General Assembly, 2020). New York and Vermont also created climate superfund laws for fossil-fuel companies. (New York State Department of Financial Services, 2023) 3. The curent state of ESG adoption in U.S Banks To assess how U.S. commercial banks have integrated and operationalized ESG principles, the analysis is structured into three stages that reflect the evolution of domestic and global ESG regulatory frameworks from 2015 to 2025. Phase 1 (2015–2018): Early Voluntary Adoption and Foundational Integration After the Global Financial Crisis, U.S. banks prioritized prudential discipline and transparent communication with investors. The release of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in June 2017 provided a reference framework for describing climate-related risks across governance, strategy, risk management, and metrics–targets (Carney, 2017). With federal regulation limited to non-binding guidance, ESG adoption during this period was largely voluntary. Major banks began expanding sustainability reporting, strengthening board oversight, experimenting with TCFD-aligned disclosures, and exploring the integration of physical and transition climate risks into enterprise risk management. Quantification, sector-specific targets, and granular asset-level data (e.g., collateral characteristics, client emissions, supply-chain risks) remained limited. Three integration pathways characterized this stage: (1) aligning business objectives with the energy transition; (2) implementing exclusionary or restrictive policies for high-risk climate sectors; and (3) standardizing governance and disclosures through frameworks such as the Equator Principles and widely accepted ESG reporting standards. For the first pathway, major banks began translating sustainability commitments into business directives. Goldman Sachs exemplified this shift by revising its environmental policy and setting a US$150 billion clean-energy financing target through 2025 (Goldman Sachs, 2014). The target influenced lending, underwriting, and proprietary investment portfolios, embedding low-carbon priorities directly into business strategy. The second pathway involved developing sectoral risk-screening mechanisms. Many banks introduced exclusion and restriction policies for high-emission industries such as thermal coal, unconventional oil and gas, and other carbon-intensive activities (Buckley, 2019). Exclusion policies specified activities the bank would not finance under any circumstances, while restriction policies established enhanced due-diligence or transition-related conditions prior to financing approval. Citigroup, for example, tightened its exposure to thermal coal between 2015 and 2018, reporting a significant decline in direct lending to pure-play coal miners by mid-2018. The third pathway emphasized governance and disclosure standardization. At the project level, banks continued applying the Equator Principles to screen environmental and social risks. Wells Copyright © ISRG Publishers. All rights Reserved. DOI: 10.5281/zenodo.17971324 281 Fargo, which adopted the principles before 2015, used them consistently during 2015–2018 to ensure structured due diligence, documentation, and consistency between policy and execution (Fargo, 2022). At the institutional level, large banks such as JPMorgan Chase issued GRI-aligned ESG reports in 2017–2018, clarifying board oversight, implementation structures, and key indicators (JPMorgan, 2017). Bank of America maintained an Environmental and Social Risk Policy Framework as an operational guide, connecting corporate-level commitments with everyday credit and risk decisions. These foundational practices enabled more advanced climate disclosures and governance reforms after 2019, and supported later alignment with TCFD and ISSB standards. Phase 2 (2019–2021): Mainstreaming TCFD, Quantitative Targets, and Sectoral Transition Policies During 2019–2021, ESG issues became more prominent in annual reports and investor engagements. Investor pressure accelerated banks’ efforts to standardize data, disclosures, and climate-risk assessment. Three major shifts occurred: the widespread institutionalization of TCFD reporting; the introduction of quantitative sustainable-finance targets and product frameworks; and sectoral policies that materially influenced credit decisions. First, TCFD-aligned disclosure became common practice at large U.S. banks. JPMorgan Chase’s 2021 ESG Report indicated that the bank arranged US$285 billion in sustainable financing in 2021 alone, toward a US$2.5 trillion ten-year target. The report also aligned governance, strategy, and metrics with TCFD recommendations (JPMorgan, 2021). Citigroup’s 2021–2022 TCFD reports linked governance, risk management, and portfoliolevel emissions targets, while updating transition metrics for specific lending segments (Citigroup, 2021). Second, banks introduced quantitative targets and redesigned product frameworks. Goldman Sachs set a US$750 billion financing, investing, and advisory target through 2030 from December 2019, focusing on climate transition and inclusive growth (Goldman, 2019). JPMorgan Chase embedded its US$2.5 trillion target into its ESG disclosure cycle, creating a consistent metric for annual progress monitoring. Wells Fargo illustrated operational alignment by reporting 100% renewable-electricity sourcing through renewable-energy certificates and gradually shifting toward long-term power-purchase agreements. Third, sector policies began influencing credit allocation in observable ways. Citigroup reported rejecting 11 coal-related transactions in 2020 under its updated climate policy (Citigroup, 2021). In parallel, several banks introduced net-zero financedemission commitments. Morgan Stanley was an early mover, announcing a net-zero target in September 2020 and setting 2030 interim targets thereafter (Morgan Stanley, 2020). Phase 3 (2022–2023): Institutionalization, Supervisory Expectations, and System-wide Disclosure Alignment The 2022–2023 period marked a transition from voluntary ESG adoption to principle-based supervisory expectations for climaterisk management. U.S. federal agencies issued the Principles for Climate-Related Financial Risk Management for Large Financial Institutions, outlining expectations for governance, strategy, riskappetite setting, scenario analysis, and internal reporting. Although the guidelines did not impose capital requirements, they signaled a clear regulatory shift toward demonstrating risk-management capabilities at board and executive levels (FED, 2022). Banks institutionalized ESG across two layers: a policysupervisory layer shaped by interagency principles, and an operational layer involving governance structures, data systems, and disclosure processes. A KPMG industry survey highlighted that banks increasingly appointed ESG-related leadership roles, invested in data infrastructure, strengthened disclosure-control functions, and enhanced board-level oversight to meet expanding reporting expectations (KPMG, 2023). At the bank level, institutionalization was reflected in more structured reporting. JPMorgan Chase issued both an ESG Report and a Climate Report for 2022, detailing board oversight, internal execution mechanisms, and climate-related metrics and targets (JPMorgan, 2022). Citigroup’s 2022 TCFD Report illustrated integration of climate risk into enterprise-risk frameworks, updated sector policies, and portfolio-emissions pathways (Citigroup, 2022). Bank of America published TCFD reports for 2022 and 2023, linking governance, risk management, sustainable-finance targets, and progress tracking (Bank of America, 2022). In this phase, disclosure practices became more standardized. Banks increasingly aligned reports with TCFD and complementary sustainability frameworks. According to KPMG’s 2024 benchmarking, the foundations built during 2022–2023 positioned U.S. banks closer to a unified sustainability-reporting system, with expanded coverage beyond climate to broader ESG themes (KPMG, 2024). Banks also continued developing financial instruments to support green transition objectives. Wells Fargo, for instance, reported issuing thematic bonds to channel capital toward affordable housing, renewable energy, and clean transportation, illustrating the operational translation of sustainability goals into concrete financial products (Fargo, 2023). 4. Analysis This study employs ESG scores and pillar-level indicators (E, S, G) from S&P Global to examine the evolution of sustainability practices across U.S. commercial banks from 2015 to 2024. Based on the S&P dataset, U.S. banks in the sample are categorized into two groups: (i) G-SIBs, consisting of JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo; and (ii) regional banks, which include all remaining institutions in the sample. Table 1 and the Figure 1 illustrate the distribution of ESG and pillar scores for U.S. commercial banks, comparing Global Systemically Important Banks (G-SIBs) with regional banks over the 2014–2024 period. Table 1: Descriptive Comparison of Mean and Median ESG, E, S, and G Scores Between G-SIBs and Regional Banks Banks in groups ESG score Environment score Social score Govermance score Observation Mean Median Mean Median Mean Median Mean Median G-SIBs 54.67 51 8.83 0 14.76 12 38.19 41 42 Regional banks 19.13 17 1.77 0 12.45 11 26.05 21 1292 Copyright © ISRG Publishers. All rights Reserved. DOI: 10.5281/zenodo.17971324 282 Figure 1: ESG Score Distribution for G-SIBs and Regional Banks The comparison reveals a clear and consistent divergence in ESG performance between G-SIBs and regional banks. G-SIBs exhibit substantially higher mean and median ESG scores, reflecting their stronger governance structures, more extensive disclosure practices, and greater institutional capacity to incorporate sustainability considerations. Their dominance is driven primarily by significantly higher governance scores, supported by robust board oversight, advanced risk-management systems, and adherence to international reporting expectations. Environmental scores, while relatively low across the U.S. banking system, are still markedly stronger among G-SIBs, consistent with their earlier adoption of climate-related reporting frameworks and larger exposure to global investor scrutiny. In contrast, regional banks show considerably lower ESG scores and a narrower distribution, suggesting limited resources, weaker disclosure incentives, and slower integration of ESG into strategic and operational processes. Overall, the descriptive evidence underscores a structural gap in ESG maturity within the U.S. banking sector, with large global institutions progressing more rapidly toward standardized, datadriven sustainability practices than their regional counterparts. In order to highlight the impact of regulation framework on the U.S. banks ESG performance, the Figure 1 is added to illustrates the average ESG and pillar scores over time, overlaid with major regulatory and policy milestones including the release of the TCFD recommendations in 2017, the wave of net-zero commitments announced by large U.S. banks around 2019, the Interagency Climate Principles issued in 2022–2023, and the SEC’s Climate Disclosure Rule finalized in 2024. This visualization provides an integrated view of how ESG performance has shifted in parallel with growing supervisory expectations and market pressures. Figure 1: Average ESG, E, S, G Scores (2014–2024) with Policy Milestones Overall ESG scores show an early rise, followed by a decline and subsequent stabilization, reflecting the tightening of disclosure standards and the increasing transparency required by regulators and investors. Before the introduction of TCFD and subsequent regulatory initiatives, ESG scores were relatively high partly because disclosure frameworks and rating methodologies were less stringent, allowing banks to receive favorable assessments based on limited, largely self-selected sustainability information rather than comprehensive, risk-based reporting. The Environmental (E) pillar exhibits the most pronounced fluctuations, increasing during periods of heightened climate-policy attention but declining when more stringent reporting requirements reveal data gaps or transition-risk exposure. Social (S) scores improve gradually, consistent with long-term workforce, customer, and communityrelated commitments that evolve more slowly. Governance (G) scores remain relatively higher throughout the period, reflecting the already strong governance structures typical of U.S. banking institutions, though they too decline after 2019 as assessment methodologies tighten and risk-management expectations expand. These trends align with broader developments in the U.S. banking sector, where large systemically important banks lead ESG adoption due to international exposure, public scrutiny, and resource capacity, while regional banks show more modest progress. The combined evidence from the chart underscores a key insight: policy advancements do not immediately translate into higher ESG scores; rather, they often impose higher disclosure Copyright © ISRG Publishers. All rights Reserved. DOI: 10.5281/zenodo.17971324 283 burdens and reveal previously unreported vulnerabilities. As a result, ESG scores tend to dip following major regulatory milestones, before gradually improving as banks strengthen data systems, integrate climate-risk management, and institutionalize sustainability practices. This dynamic reflects the broader shift in the U.S. market from voluntary ESG engagement to a more structured, supervised, and data-driven sustainability regime. 5. Conclusion This study provides a comprehensive assessment of ESG adoption within the U.S. banking sector by integrating the regulatory landscape with empirical evidence drawn from S&P Global ESG scores for more than 200 banks over the 2014–2024 period. The findings reveal a clear divergence between G-SIBs and regional banks, with the former demonstrating significantly stronger and more consistent ESG performance, particularly in governance and environmental dimensions. Trend analysis further shows that major regulatory milestonesdo not immediately increase ESG scores; instead, they raise disclosure expectations, expose data gaps, and reshape rating methodologies. Over time, however, the regulatory framework supports gradual improvements as banks strengthen data systems, governance structures, and climate-risk management practices. Overall, these findings suggest that regulators may need to provide clearer guidance, transitional support, and standardized reporting tools to help smaller banks comply effectively and reduce disparities in ESG readiness across the sector. Acknowledgments Funding: The authors gratefully acknowledge the financial support from the Banking Academy of Vietnam. Competing interests: The authors declare that there are no conflicts of interest regarding the publication of this paper. REFFERENCES 1. Board of G overnors of the Federal Reserve System. (2022). 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