The Role of Sustainability Disclosure in Enhancing Bank Performance: Evidence from ASEAN Countries

This study explores the effect of Sustainability Disclosure on Bank Performance by using Bank Risk as a mediating variable in ASEAN countries. Sustainability disclosure, which includes Environmental, Social, and Governance (ESG) aspects, is increasingly recognized as an important factor in improving transparency, risk management, and financial performance. This study uses Risk Density as an indicator of Bank Risk, which is considered more accurate in assessing the quality of asset portfolios and financial stability of banks than traditional methods such as Altman Z-Score. Using panel regression and Sobel Test, the results show that Sustainability Disclosure has a negative effect on Bank Risk, suggesting that higher disclosure correlates with lower risk. In addition, Bank Risk is shown to mediate the effect of sustainability disclosure on Return on Assets, Return on Equity, and Tobin's Q. However, the direct effect of Sustainability Disclosure on bank performance is not significant. This study contributes to the literature by introducing Risk Density as a more comprehensive tool for measuring banking risk and assessing the impact of ESG disclosure. The results support the Stakeholder Theory, which states that effective risk management and transparent disclosure not only strengthen the relationship between firms and stakeholders but also improve long-term financial stability and performance. The findings provide insights for policymakers and stakeholders on the importance of ESG integration in banking business practices in ASEAN countries.