From Stability to Sustainability: How Bank Risks and Climate Exposures Influence ESG

Authors

Keywords:

Bank risk, Climate risks, ESG performance, Sustainable Banking, Asia Pacific

Abstract

The purpose of this study is to investigate the connection between the bank risks and climate risks with environmental, social, and governance (ESG) performance of the banking institutions in Asia Pacific countries. In this study, bank risk is represented by three dimensions which are liquidity risk, credit risk, and capital risk, while climate risk is represented by physical risk and transition risk. This study also adds bank size, profitability, and economy as the control variables. Unbalanced panel data of 75 listed banking institutions between 2010 and 2024 from 10 selected countries have been arranged and go through preliminary tests to check for robustness and validity. In accordance with the Hausman Test, this study uses Fixed Effect Model (FEM) to examine the relationship of the variables. The results reveal that capital risk has a significant negative impact on ESG performance, whereas liquidity and credit risks are positive but insignificant with the bank’s ESG performance. Transition risk, proxied by fossil fuel energy consumption, shows a strong negative relationship with ESG performance, while physical risk is found to have insignificant relationship with ESG performance. Among the control variables, bank size positively and significantly influences ESG performance, confirming that larger banks possess greater resources to implement sustainable strategies. The findings suggest that robust capitalization and reduced reliance on carbon-intensive sectors would enhance bank’s ESG outcomes. The study makes contribution to a broader literature on sustainable banking through the inclusion of regional evidence from APAC and offers policy recommendations to strengthen the integration of financial and climate risk management in the world of banking.

Author Biographies

  • Nor Hazirah Mohamad-Shukri, UiTM Shah Alam

    Nor Hazirah Mohamad-Shukri is a PhD student in the field of Finance at Arshad Ayub Graduate Business School, Universiti Teknologi MARA (ORCID: https://orcid.org/0009-0007-9095-8755). Her main research activity focuses on sustainable banking, particularly examining the role of financial metrics and Environmental, Social, and Governance (ESG) performance in Asia-Pacific banking institutions. Her current research work contributes to both academic literature and policy discussions on promoting sustainable finance in the region. She can be reached through her email at nhazirahshukri@gmail.com.

  • Wahida Ahmad, UiTM Shah Alam

    Wahida Ahmad is an Associate Professor of Finance at Universiti Teknologi MARA, Malaysia (ORCID: https://orcid.org/0000-0002-8874-8229). She earned her doctoral degree (PhD) in 2013 in economics and finance from La Trobe University, Australia. Her main research interest is in the area of finance, banking, productivity, sustainability and financial behaviour. She has published in various journal, among others; Management Accounting Review, The Singapore Economic Review, Global Business and Management Research: An International Journal, Journal of Entrepreneurship, Business and Economics, Information Management and Business Review, Social and Management Research Journal and Jurnal Intelek. She can be reached through her email at wahida@uitm.edu.my.

  • Nur Hazimah Amran, UiTM Shah Alam

    Nur Hazimah Amran is a Senior Lecturer at Universiti Teknologi MARA, Malaysia (ORCID: https://orcid.org/0000-0002-3700-3091. She earned her doctoral degree (PhD) in 2022 from Universiti Teknologi MARA. She also holds position as the coordinator of e-Learning of Arshad Ayub Graduate Business School, Universiti Teknologi MARA. Her main research interest is in the area of banking, risk, finance, financial management, financial behaviour and Islamic finance. She has published several journal articles, among others; Management Accounting Review, International Journal of Economics and Management, and Malaysian Journal of Consumer and Family Economics. She can be reached through her email at hazimahamran@uitm.edu.my.

  • Nur Syahirah Rokeman, UiTM Shah Alam

    Nur Syahirah Rokeman is currently a full-time postgraduate student under the Faculty of Business Management (FBM), Universiti Teknologi MARA (UiTM) Shah Alam, Selangor (ORCID: https://orcid.org/0009-0009-0362-2204). Her main research interest is in the field of banking and finance. She has published several papers on these field such as the Global Business and Management Research: An International Journal and Environment-Behaviour Proceedings Journal. She can be reached through her email at syahirah35@gmail.com.

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Published

2026-01-31

Issue

Vol. 21 No. 1 (2026): Jurnal Intelek Vol. 21 Issue 1 (February) 2026

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Copyright (c) 2026 Nor Hazirah Mohamad-Shukri, Wahida Ahmad, Nur Hazimah Amran, Nur Syahirah Rokeman

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