The study comprehensively analyzes the main features of the European banking system and exanimes the biggest challenges related to the functioning of market for environmental, social and governance (ESG) ratings in order to emphasize the importance of sustainable banking for the further development of sustainable financial system and the need to improve transparency, availability and credibility of environmental, social and governance ratings. The subject of this paper's empirical research are environmental, social and governance (ESG) factors in banking sector. The potential impact of environmental, social and governance factors on the bank performance was investigated using a sample of 118 European commercial banks. For that purpose, three theoretical assumptions were developed and regression analysis was applied. Empirical results show a positive relationship between bank's ESG ratings and their return on assets, while the relationships between each ESG pillar are mixed if measured individually. The prediction regarding the positive relationship between environmental performance and bank financial performance was confirmed. On the other hand, the predictions regarding the positive relationship between social responsibility and bank financial performance and the positive relationship between corporate governance and bank financial performance were rejected. This research emphasized the potentially significant role of the banking sector regarding to their contribution to the development of sustainable financing in Europe, as well as the possibilities of integrating ESG policies into the bank's business models.