The Impact of ESG Criteria on Bank Financial Performance: An Empirical Analysis of the Turkish Banking Sector

Abstract

Purpose – This study aims to examine the impact of Environmental, Social, and Governance (ESG) criteria on the financial performance of the banking sector in Turkey. The research investigates the role of ESG practices in bank profitability, risk management, and sustainable financial structure.
Design/Methodology/Approach – The study employs panel data analysis using banking data from the 2015–2023 period. ESG performance is represented by environmental, social, and governance scores, while financial performance is measured through indicators such as ROAA, ROAE, total assets, liquidity ratios, and foreign exchange positions. The fixed effects model was adopted, with Driscoll-Kraay standard errors applied to address cross-sectional dependence and heteroskedasticity.
Findings – The analysis reveals that environmental and social factors have a positive effect on long-term profitability and bank size, whereas certain limitations are observed in liquidity and foreign exchange indicators. Governance factors do not significantly impact profitability directly but play an important role in risk management.
Discussion – The findings demonstrate that ESG compliance affects financial performance in various aspects in the Turkish banking sector, highlighting the need for carefully designed sustainability policies. A holistic approach to ESG implementation may enhance the banks’ capacity for long-term value creation.