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<p>This paper examines how the disaggregated Environmental, Social, and Governance (ESG) pillars influence bank financial performance (FP) in the ASEAN-5 region through the mediating role of bank risk-taking (BRT). It aims to clarify whether ESG activities serve as risk-disciplining mechanisms that improve market-based performance outcomes, addressing the empirical ambiguity surrounding ESG-FP linkages in emerging banking systems. The analysis uses dynamic panel data of 62 listed banks across Indonesia, Malaysia, the Philippines, Singapore, and Thailand from 2015 to 2024. To control for endogeneity and unobserved heterogeneity, the study applies the Windmeijer-corrected two-step System Generalized Method of Moments (SYS-GMM) estimator, complemented with Least Squares Dummy Variable Corrected (LSDVC) estimation for bias correction. Mediation is tested using the Baron and Kenny (1986) procedural framework. Results show heterogeneous mediation patterns across ESG pillars. The Environmental pillar exhibits no significant direct or indirect impact on FP, indicating its weak financial materiality in ASEAN banking. The Social pillar provides marginal but consistent evidence of full mediation through BRT, where improved stakeholder relations and community engagement appear to reduce risk-taking and enhance performance indirectly. The Governance pillar exhibits partial mediation, suggesting that board quality and compliance controls influence FP both directly and through risk moderation. These results position BRT as an important behavioural channel linking ESG discipline to financial outcomes. This study is among the first to employ dynamic panel estimators to test the mediating role of BRT in the ESG-FP nexus for ASEAN banks. It contributes to sustainable finance literature by reframing ESG integration as a risk-discipline mechanism rather than a mere compliance tool. The findings offer practical insights for regulators, compliance officers, and bank executives seeking to embed ESG metrics within prudential supervision, credit risk models, and governance frameworks.</p>

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The mediating role of bank risk-taking in the relationship between ESG pillars and banks financial performance in ASEAN-5 economies

  • 期刊论文

  • 发表日期：

    2026年7月1日

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  • Mohammed R. M. Salem,
  • Abdul Hafizh Mohd Azam,
  • Shahida Shahimi,
  • Mohd Fahmi Ghazali

摘要

This paper examines how the disaggregated Environmental, Social, and Governance (ESG) pillars influence bank financial performance (FP) in the ASEAN-5 region through the mediating role of bank risk-taking (BRT). It aims to clarify whether ESG activities serve as risk-disciplining mechanisms that improve market-based performance outcomes, addressing the empirical ambiguity surrounding ESG-FP linkages in emerging banking systems. The analysis uses dynamic panel data of 62 listed banks across Indonesia, Malaysia, the Philippines, Singapore, and Thailand from 2015 to 2024. To control for endogeneity and unobserved heterogeneity, the study applies the Windmeijer-corrected two-step System Generalized Method of Moments (SYS-GMM) estimator, complemented with Least Squares Dummy Variable Corrected (LSDVC) estimation for bias correction. Mediation is tested using the Baron and Kenny (1986) procedural framework. Results show heterogeneous mediation patterns across ESG pillars. The Environmental pillar exhibits no significant direct or indirect impact on FP, indicating its weak financial materiality in ASEAN banking. The Social pillar provides marginal but consistent evidence of full mediation through BRT, where improved stakeholder relations and community engagement appear to reduce risk-taking and enhance performance indirectly. The Governance pillar exhibits partial mediation, suggesting that board quality and compliance controls influence FP both directly and through risk moderation. These results position BRT as an important behavioural channel linking ESG discipline to financial outcomes. This study is among the first to employ dynamic panel estimators to test the mediating role of BRT in the ESG-FP nexus for ASEAN banks. It contributes to sustainable finance literature by reframing ESG integration as a risk-discipline mechanism rather than a mere compliance tool. The findings offer practical insights for regulators, compliance officers, and bank executives seeking to embed ESG metrics within prudential supervision, credit risk models, and governance frameworks.