Exploring environmental, social, and governance (ESG) practices and bank credit risk in the gulf cooperation council region

Nik Abdullah, Nik Anis Idayu and Haron, Razali and Nik Abdullah, Nik Anis Sazwani (2025) Exploring environmental, social, and governance (ESG) practices and bank credit risk in the gulf cooperation council region. Asian Journal of Social Science Research, 7 (2). pp. 59-72. E-ISSN 2600-9706

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Abstract

Financial institutions around the world are increasingly embracing sustainability reporting to address stakeholder demands for greater transparency on environmental, social, and governance (ESG) issues. ESG practices in banks play a significant role in shaping credit risk by influencing perceptions of financial stability and responsible management. In the Gulf Cooperation Council (GCC) countries, the adoption of ESG practices remains relatively emerging compared to other regions, despite growing global momentum. This study investigates the relationship between ESG performance and bank credit risk within the context of the six GCC countries. Data from 45 listed banks across these nations from 2008 to 2021, the research focuses on ESG scores as the primary independent variable and credit risk as the dependent variable. This study reported a negative relationship between ESG performance and credit risk, primarily driven by the social dimension of ESG. Among the three ESG dimensions, only the social score demonstrates a significant negative relationship with credit risk. Environmental and governance factors exhibit no notable impact, suggesting that heightened efforts in these areas do not necessarily mitigate credit risk for banks. These results imply that while ESG activities hold intrinsic value, they are not widely perceived as critical determinants of banks’ credit risk, highlighting the potential for resources to be allocated toward other value-enhancing initiatives.

Item Type:	Article (Journal)
Uncontrolled Keywords:	ESG, Credit Risk, GCC countries, Banks, Sustainability Reporting
Subjects:	H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Institute of Islamic Banking & Finance (IIiBF)
Depositing User:	Dr. Razali Haron
Date Deposited:	20 Feb 2026 13:29
Last Modified:	20 Feb 2026 13:29
Queue Number:	2026-02-Q2164
URI:	http://irep.iium.edu.my/id/eprint/127455

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