The Moderating Role of ESG in the Relationship Between Cost Efficiency and Financial Performance: Evidence from Vietnamese Commercial Banks

This study employs ESG scores calculated for 24 Vietnamese commercial banks over the period 2018–2022 using the Fair Finance Guide Methodology (FFGM) to provide empirical evidence on the role of ESG factors in internal operations, credit, and investment activities. Using panel data with 120 observations and the Feasible Generalized Least Squares (FGLS) estimation, the findings reveal that ESG commitment has a positive impact on banks’ financial performance. Moreover, ESG acts as a moderating factor that attenuates the negative effect of cost efficiency (CIR) on financial outcomes, particularly through the net interest margin (NIM) channel. These findings are interpreted by institutional theory, legitimacy theory, and stakeholder theory. Besides, the results show that the bank’s ESG policy does not increase costs even in the short term. The study also proposes policy implications and directions for future research to promote sustainable finance and ESG practices in Vietnam’s banking sector.