This study examines the relationship between banks’ ESG performance and core risk and balance sheet indicators in the Turkish banking sector. Using an unbalanced panel of eight banks listed on Borsa Istanbul over the period 2008–2023, we estimate bank fixed-effects models with one-year-lagged ESG measures and controls and report Driscoll–Kraay standard errors. Two complementary specifications are employed: one based on the composite ESG score and another based on its environmental (E), social (S), and governance (G) pillars. The findings suggest that the composite ESG score is positively associated with non-performing loans and capital adequacy, while its relationship with liquidity risk and net balance sheet position/equity is less stable across specifications. When the ESG pillars are examined separately, substantial heterogeneity emerges across the E, S, and G dimensions. In particular, the environmental score is negatively associated with capital adequacy, whereas the social score is negatively associated with net balance sheet position/equity. Governance-related results appear weaker and more sensitive to specification choice. Overall, the findings indicate that ESG does not operate through a uniform risk channel in banking and should be interpreted as associational rather than causal. The study contributes evidence from an emerging-market banking system and highlights the importance of disaggregated ESG analysis.
Ciğer et al. (Thu,) studied this question.