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Does Mediation Matter in Explaining the Relationship between ESG and Bank Financial Performance? A Scoping Review

Author

Listed:
  • Mohammed R. M. Salem

    (Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia)

  • Shahida Shahimi

    (Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia)

  • Suhaili Alma’amun

    (Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia)

Abstract

This study identifies and synthesizes patterns and trends in the emerging body of literature of environmental, social, and corporate governance (ESG) endeavors on the financial performance (FP) of the banking firms. It specifically aims to highlight the relationship of ESG–FP. The scoping review analysis is based on 1856 journal articles from two online databases, namely Scopus and Web of Science (WoS) for the period of 2015 to 2023. The analysis reveals inconsistent results regarding the ESG–FP relationship, with some studies reporting positive impacts, others negative, and several showing no significant relationship. Notably, non-linear studies consistently identify an inverted U-shaped relationship, suggesting that there is a threshold level of ESG investment beyond which additional investments do not yield proportional benefits. This indicates that threshold-based policies may be more effective at maximizing ESG benefits. The study also found that numerous studies suggested exploring the indirect effect or mediating variables in the ESG–FP relationship to better explain the FP variance. Thus, the study identifies a need for future research to explore indirect relationships by testing potential moderators or mediators, particularly bank risk-taking, to better understand the ESG–FP dynamics. Policymakers and regulators should adopt non-linear analytical approaches and set threshold-based ESG investment policies, while bank management should strategically invest in ESG activities, integrating ESG considerations into risk management frameworks. Continuous monitoring and evaluation, along with stakeholder engagement, are crucial for optimizing ESG investments. By adopting these strategies, banks can enhance financial performance and contribute to sustainable and responsible banking practices.

Suggested Citation

  • Mohammed R. M. Salem & Shahida Shahimi & Suhaili Alma’amun, 2024. "Does Mediation Matter in Explaining the Relationship between ESG and Bank Financial Performance? A Scoping Review," JRFM, MDPI, vol. 17(8), pages 1-18, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:350-:d:1454850
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    References listed on IDEAS

    as
    1. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    2. Ersan Ersoy & Beata Swiecka & Simon Grima & Ercan Özen & Inna Romanova, 2022. "The Impact of ESG Scores on Bank Market Value? Evidence from the U.S. Banking Industry," Sustainability, MDPI, vol. 14(15), pages 1-14, August.
    3. Caterina Di Tommaso & John Thornton, 2020. "Do ESG scores effect bank risk taking and value? Evidence from European banks," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2286-2298, September.
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    Cited by:

    1. Reni Listyawati & Hadri Kusuma & Yuni Nustini, 2025. "The Role of Sustainability Disclosure in Enhancing Bank Performance: Evidence from ASEAN Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 21-43.
    2. Mohammed R. M. Salem, 2026. "ESG strategic intensity and AI capability impact on risk-adjusted lending performance; mediating role of credit-risk discipline in ASEAN banks," Future Business Journal, Springer, vol. 12(1), pages 1-22, December.
    3. Maru, Lucy, 2026. "The mediating role of ESG on the interaction between green banking and financial performance of commercial banks in Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 103, Kenya Bankers Association (KBA).
    4. Mohammed R. M. Salem & Shahida Shahimi & Suhaili Alma‘amun & Abdul Hafizh Mohd Azam & Mohd Fahmi Ghazali, 2025. "ESG and Banking Performance in ASEAN-5: Disaggregated Analysis Using System GMM and LSDVC," SAGE Open, , vol. 15(4), pages 21582440251, November.

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