This chapter examines the impact of ESG implementation, as measured by both aggregate and pillar-level indicators, on bank profitability in the GCC region. Using the GMM system estimator on a sample of 55 Islamic and conventional banks for 2012–22, the analysis finds that ESG performance has a statistically significant adverse effect on ROE, ROA, and NIM. This suggests that environmental investments, social initiatives, and governance compliance are perceived as a financial burden. The results from the interaction models show that Islamic banks benefit from environmental and governance commitments, consistent with the novel Israf-avoidance hypothesis and ethical Sharia-based monitoring structures. Furthermore, bank size moderates the ESG-profitability relationship through the cost channel (i.e., ROA), with larger banks experiencing diminishing marginal returns from ESG adoption. This may be because ESG implementation has been mandated for larger institutions. The study calls for harmonising ESG practices across bank sizes, introducing incentives to support intermediary finance, and deepening the integration of ESG considerations into operational and risk-management frameworks. Future research should investigate cost efficiency mechanisms, regulatory interactions, and potential nonlinearities in the ESG-performance nexus.