Environment, Social and Governance (ESG) and Asset Quality of Banks in the Gulf Cooperation Council

This study investigates the relationship between Environmental, Social, and Governance (ESG) scores and asset quality within the banking systems of the Gulf Cooperation Council (GCC) countries. A total of 42 banks including conventional and Islamic banks were selected for the study. The primary dependent variables include non-performing loans and the impaired percentage of shareholders' equity, while the independent variable is the management score derived from ESG criteria. Regression analysis was employed to assess the relationships between these variables. The study results revealed a significant relationship between management scores and asset quality, indicating that higher management scores correlate with lower non-performing loans. In addition, a negative correlation was observed between non-performing loans (as a percentage of shareholders’ equity) and key performance indicators such as earning assets, market capitalization, and return on average common equity.