Developing an ESG score for Tunisian banks: a quantile regression approach to assess its impact on financial performance with governance quality moderation

Purpose The objective of this research is to develop a novel Environmental, Social, and Governance (ESG) score for the Tunisian banking sector and investigate its relationship with financial performance. In addition, the study analyzes the moderating influence of a newly constructed corporate governance quality index on this relationship across different quantiles of banking performance. Design/methodology/approach The research constructs a new ESG score by combining quantitative and qualitative data from Tunisian banks' annual reports and social media platforms. A corporate governance quality index, based on 12 key characteristics, has also been developed. The analysis uses quantile regression to evaluate the effect of the ESG score on banking performance and to explore the moderating effect of corporate governance quality across different performance quantiles. Findings The results exhibit a significant negative relationship across ESG scores and banks' financial performance at both low and high-performance levels. However, the quality of corporate governance positively moderates this relationship. Further analysis reveals that the Environmental pillar exerts a positive influence on performance, which is enhanced by the governance quality, while the Social pillar's positive impact is mainly observed in higher-performing banks. Practical implications The newly developed ESG rating system is a valuable measure for investors, policymakers and bank managers to evaluate the sustainability efforts of Tunisian banks. The results highlight the importance of enhancing corporate governance to maximize the benefits of ESG practices. Originality/value This study introduces both the first ESG score and corporate governance index specific to the Tunisian banking sector, offering new practical evidence of the nexus between ESG, banking performance and governance in an emerging market context.