Purpose The purpose of this study is to examine the effects of digital transformation on the ESG performance of banks in emerging countries, highlighting the contrasting impacts on environmental, social and governance dimensions and how these dynamics evolved before, during and after the COVID-19 pandemic. Design/methodology/approach To examine the influence of digital transformation on banks’ ESG performance in emerging markets, this research utilizes a two-step Generalized Method of Moments (GMM) approach, which effectively addresses potential endogeneity issues in panel data analysis. The sample includes 250 banks from 25 emerging countries over the period 2012–2024. To ensure robustness, the study decomposes digitalization into two components: technological foundation and technological application. Moreover, this study analyzed the data across three distinct periods: pre-COVID (2012–2019), during COVID (2020–2021) and post-COVID (2022–2024). This approach allowed us to examine the unique impacts of the pandemic on digital transformation trends and its influence on ESG performance. Findings The adoption of digital technologies enhances the social dimension of banks’ performance, notably by promoting greater financial inclusion. On the other hand, it exerts adverse effects on environmental and governance aspects, primarily because of the heightened energy demands of digital systems and the complexities associated with managing advanced technologies. The analysis reveals that the COVID-19 period had a distinct impact on these dynamics, particularly accelerating the adoption of digital technologies but also leading to heightened governance and environmental challenges. Post-COVID, banks showed a more balanced approach to digitalization, attempting to mitigate negative effects while enhancing social performance. Research limitations/implications The limitations of this study include the absence of ESG disclosure analysis and the assumption of a linear relationship between digitalization and ESG performance. Future research could explore nonlinear relationships or compare dynamics between conventional and Islamic banks. In addition, while this study conducted separate analyses for the pre-COVID, during-COVID and post-COVID periods, future studies could further explore the long-term effects of the pandemic on digital transformation and ESG performance in greater depth. Practical implications The findings underscore the need for emerging banks to adopt integrated strategies to maximize the benefits of digitalization while mitigating its negative effects on the environment and governance. Policymakers and regulators can use these insights to develop tailored regulatory frameworks that support digital transformation while promoting sustainable practices, particularly in the aftermath of the pandemic. These frameworks should help banks navigate the increased challenges of digitalization, including cybersecurity and energy consumption, while ensuring that ESG objectives are not compromised. Social implications Digitalization promotes financial inclusion and access to banking services for underbanked populations, thereby helping to reduce social inequalities. However, it may also exacerbate environmental and governance challenges, requiring corrective measures such as green technologies and enhanced data governance frameworks. The post-COVID period shows an opportunity for banks to refine their strategies, using lessons learned from the pandemic to address these challenges more effectively. Originality/value This study makes an original contribution by examining the effects of digitalization on ESG performance in emerging markets, with a focus on three distinct periods: pre-COVID, during COVID and post-COVID. This approach, which is often overlooked in existing literature, provides a more nuanced understanding of how digitalization impacts ESG performance across different economic and regulatory contexts, particularly in the face of a global crisis like the COVID-19 pandemic. The study also provides robust empirical evidence and practical recommendations for aligning digital transformation with sustainable development goals in emerging economies.
Dorsaf Bentaleb (Mon,) studied this question.