The Mediating Role of Credit Risk in the Relationship Between ESG and Bank Efficiency: Evidence from ASEAN-4

This study examines how environmental, social, and governance (ESG) performance affects bank efficiency and the role of credit risk in this relationship across four ASEAN countries (Indonesia, Malaysia, the Philippines, and Thailand) from 2014 to 2023. The research uses the Generalised Method of Moments (2SYS-GMM) to address endogeneity and analyses 320 bank-year observations. The results show that ESG performance has a significant positive impact on bank efficiency. Additionally, credit risk plays a crucial role in how social and governance factors affect efficiency and partially mediates the effect of the environmental pillar and the overall ESG score. These findings suggest that integrating ESG principles into credit risk management can enhance bank operations and support sustainable growth in developing countries. This study contributes to the understanding of how ESG affects bank performance in the ASEAN context, particularly regarding credit risk.