Does Banking-Specific ESG Context Strengthen the Value Relevance of ESG Performance?

Abstract

This study examines whether Environmental, Social, and Governance (ESG) performance affects bank firm value and whether banking-specific ESG context strengthens this relationship. Using a quantitative approach, the study employs unbalanced panel data from 26 banks comprising 133 bank-year observations during 2019–2024, with Tobin’s Q as the proxy for firm value, aggregate ESG and its environmental, social, and governance dimensions as independent variables, and banking-specific ESG context as a moderating variable. The results show that aggregate ESG performance has no significant effect on Tobin’s Q (β = −0.0812; p = 0.149). At the dimension level, environmental (β = 0.01995; p = 0.392), social (β = −0.08744; p = 0.237), and governance performance (β = −0.01838; p = 0.807) are also statistically insignificant. Furthermore, banking-specific ESG context does not significantly moderate the relationship between aggregate ESG performance and firm value (β = 0.02690; p = 0.417), while none of the dimension-specific interaction effects is significant. These findings indicate that ESG performance does not automatically generate a valuation premium for banks, thereby extending the value relevance perspective by emphasizing the importance of information credibility, economic materiality, and the connection between ESG performance, risk, and future financial prospects. The findings imply that banks should integrate ESG with risk management, transparency, financing strategies, and long-term value creation, while future research should examine mediating mechanisms such as ESG disclosure, ESG controversies, financed emissions, and reputational risk.