ESG Disclosure Quality and Banking Risk: A Dynamic Panel Analysis of Middle East and African Banks

Abstract

This study aims to analyze the impact of environmental, social, and governance (ESG) disclosure quality on banking risk. Data were collected from the 100 largest commercial banks in the Middle East and Africa over ten years and examined using econometric analysis to measure the influence of ESG disclosure quality on banking risks. The findings indicate that both social and environmental disclosures have high predictability, while governance disclosure shows lower predictability. A significant negative relationship exists between the ESG disclosure quality and risk. Governance disclosure, Tier 1 capital, has a strong influence, and capital adequacy has the least. Managerial and practical implications are based on bank compliance, coverage, and debt. Unlike previous studies, this study moves from ESG performance to its disclosure quality and combines the random forest method (machine learning) with dynamic panel analysis (econometrics), bringing innovation and contribution to knowledge (the stakeholder theory) and practice.