ESG Engagement and Commercial Banks’ Value Creation: Evidence from Global Panel Data

This study quantifies the impact of Environmental, Social, and Governance (ESG) engagement on commercial banks’ financial performance using an unbalanced panel of 120 listed banks across 15 countries from 2019 to 2023 (N = 600). Employing bank and year fixed‐effects and System GMM estimators, we find that a 10-point increase in aggregate ESG scores is associated with a statistically significant 0.12 percentage‐point increase in return on assets (ROA) (p < 0.01) and a 0.05 rise in Tobin’s Q (p < 0.05), after controlling for bank size, leverage, capital adequacy, loan loss provisions, cost‐to‐income ratio, GDP growth, and inflation. Disaggregated analysis reveals governance improvements yield the largest performance gains (ROA β = 0.015, p < 0.01), environmental initiatives deliver moderate benefits (ROA β = 0.011, p < 0.05), and social factors exhibit positive but heterogeneous effects. Robustness checks substituting MSCI ESG scores and instrumenting ESG with country‐level disclosure mandates confirm magnitude and significance. Additional subsample tests across developed versus emerging markets and pre‐/post‐COVID‐19 periods uphold results. These findings demonstrate that ESG adoption functions as a strategic capability, enhancing profitability and market valuation. Policymakers and bank managers should prioritize governance reforms and environmental integration to sustain value creation.