Does ESG reporting truly align with carbon performance? New evidence from the dual banking sector in emerging markets

Purpose Using neo-institutional theory, this study aims to explore how environmental, social and governance (ESG) reporting affects carbon emissions in emerging market banks, including conventional and Islamic banks. Design/methodology/approach The sample comprises 69 emerging market banks, decomposed into 14 Islamic and 55 conventional banks, from 11 countries during the period of 2013–2023. The authors conduct panel data regressions to test hypotheses, followed by sensitivity tests, two-stage least squares and Heckman regressions for robustness checks. Findings The results demonstrate a positive association between the extensive ESG reporting provided by the banks and their carbon emission, indicating the potential carbon-washing practices in the emerging market banks. This relationship is also considered separately for banks' ESG reporting. Finally, despite the adverse effect of being an Islamic bank on carbon emission, the findings reveal that the ESG reporting-carbon emission association is observed to be reinforced in these institutions, capturing a moderating role of being an Islamic bank in this association. Practical implications It helps identify areas for improving ESG reporting standards and tackling carbon-washing in non-financial reporting within emerging market banks. These insights will be practically beneficial for relevant stakeholders committed to advancing sustainable development particularly related to climate action. Social implications It enhances the public's awareness of how the banking sector deals with climate issues and how Islamic banks address it differently from their conventional counterpart. Originality/value The literature on the consequences of banks' ESG practices on climate issues is scarce. To the best of the authors' knowledge, no empirical studies have investigated ESG reporting and carbon emission relationships in emerging market banks, focusing on a comparative analysis between conventional and Islamic banks.