In this study, we investigated the relationship between Environmental, Social, and Governance (ESG) disclosure and firm value in the Asia-Pacific banking sector, based on panel data from 249 publicly listed banks across 18 countries over the period 2009–2023. Under increasing regulatory and market pressures, ESG transparency is often adopted without sufficient internal risk governance, raising concerns of symbolic compliance and greenwashing. To address this gap, we introduced Credit-based Loan Loss Provision (CLLP) as a novel mediating mechanism that captures the integration of ESG into prudential credit risk management. Using a fixed-effects panel regression and a two-stage least squares (2SLS) approach, our findings revealed that ESG disclosure exerts a significantly negative direct effect on firm value, as measured by Tobin's Q, particularly in the absence of credible risk governance. However, when mediated by CLLP, ESG disclosure, across environmental disclosure scores (EDS), social disclosure scores (SDS), and governance disclosure scores (GDS) dimensions, positively and significantly influences firm value. Moreover, a nonlinear analysis revealed an inverted U-shaped relationship, indicating that while moderate ESG disclosure enhances firm value, excessive disclosure may reduce it. These results underscore the importance of aligning ESG reporting with internal risk controls to ensure credibility and market value. The study contributes to the theoretical discourse by reinforcing stakeholder, signaling, legitimacy, and resource-based view perspectives. It offers practical implications for regulators and banking institutions aiming to enhance the quality of ESG disclosure and its integration into risk-based frameworks for sustainable finance.
Citation: Netti Natarida Marpaung, Sugeng Wahyudi, Irene Rini Demi Pangestuti. Green banking in transition: ESG disclosure, credit risk governance, and firm value in an institutionally diverse Asia-Pacific dataset[J]. Green Finance, 2025, 7(4): 689-716. doi: 10.3934/GF.2025026
In this study, we investigated the relationship between Environmental, Social, and Governance (ESG) disclosure and firm value in the Asia-Pacific banking sector, based on panel data from 249 publicly listed banks across 18 countries over the period 2009–2023. Under increasing regulatory and market pressures, ESG transparency is often adopted without sufficient internal risk governance, raising concerns of symbolic compliance and greenwashing. To address this gap, we introduced Credit-based Loan Loss Provision (CLLP) as a novel mediating mechanism that captures the integration of ESG into prudential credit risk management. Using a fixed-effects panel regression and a two-stage least squares (2SLS) approach, our findings revealed that ESG disclosure exerts a significantly negative direct effect on firm value, as measured by Tobin's Q, particularly in the absence of credible risk governance. However, when mediated by CLLP, ESG disclosure, across environmental disclosure scores (EDS), social disclosure scores (SDS), and governance disclosure scores (GDS) dimensions, positively and significantly influences firm value. Moreover, a nonlinear analysis revealed an inverted U-shaped relationship, indicating that while moderate ESG disclosure enhances firm value, excessive disclosure may reduce it. These results underscore the importance of aligning ESG reporting with internal risk controls to ensure credibility and market value. The study contributes to the theoretical discourse by reinforcing stakeholder, signaling, legitimacy, and resource-based view perspectives. It offers practical implications for regulators and banking institutions aiming to enhance the quality of ESG disclosure and its integration into risk-based frameworks for sustainable finance.
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Netti Natarida Marpaung, Sugeng Wahyudi, Irene Rini Demi Pangestuti. Green banking in transition: ESG disclosure, credit risk governance, and firm value in an institutionally diverse Asia-Pacific dataset[J]. Green Finance, 2025, 7(4): 689-716. doi: 10.3934/GF.2025026
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