Assessing bank performance accurately is crucial for regulators, investors, and policymakers to ensure both financial stability and sustainability. However, traditional methods often fail to account for important aspects, such as the integration of Environmental, Social, and Governance (ESG) factors. 

This policy brief summarizes key insights from the study “Assessing the Performance of Banks through an Improved Sigma-Mu Multicriteria Analysis Approach” by S. Angilella et al. (2024), which introduces an advanced methodology for evaluating bank performance. The improved sigma-mu (𝜎-𝜇) approach combines multicriteria decision analysis incorporating Pareto dominance principles, leading to a more comprehensive performance assessment. 

By analysing a set of European banks that passed the 2017-2021 European stress test conducted by the European Banking Authority (EBA), the study reveals performance variations influenced by country specific green policies and individual bank practices. This brief emphasizes the need for enhanced bank evaluation method and provides recommendations for incorporating these techniques into regulatory frameworks.