Does Environmental, Social, Governance (ESG) Investments Influence Bank Performance? Cross-Country Evidence from emerging Markets

Year 2025, Volume: 9 Issue: 2, 90 - 103, 21.10.2025

Mehtap Öner , Aslı Aybars , Murat Çinko , Emre Zehir

Abstract

This study aims to provide a comprehensive analysis of how Environmental, Social, and Governance (ESG) practices of banks influence their financial and market performance, which are proxied by return on assets (ROA) and Tobin’s Q, respectively. The sample comprises 35 banks from 11 emerging market countries over the period from 2017 to 2022. To assess this relationship, two distinct models are estimated for each performance indicator, examining both contemporaneous and lagged effects. The results reveal a negative association between ESG scores and financial performance, consistent with the predictions of the Trade-off Hypothesis in that costs associated with ESG investments may outweigh their financial benefits . This negative relationship remains robust when considering the lagged effects. However, no significant impact is found between ESG practices and market performance, as proxied by Tobin’s Q, across the models tested. The findings of this study offer important insights into the role of ESG practices within the banking industry, especially in emerging economies where the adoption and implementation of these practices may be in the early phases and differ considerably among institutions.

Keywords

ESG , Banking sector , Emerging countries , Financial performance , Market performance , Panel data analysis

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