ESG activities and bank risk-taking: The mediating role of liquidity creation and the moderating role of bank funding structure in ASEAN-5

This paper investigates how ESG activities shape bank risk-taking in ASEAN-5, focusing on liquidity creation (LC) as a transmission channel and bank funding structure (BFS) as a conditioning environment. Using an unbalanced panel of 62 banks over 2015–2024, the study measures ESG activities with Refinitiv ESG scores, bank risk-taking (BRT) with non-performing loans, and LC with the loan-to-deposit ratio. The empirical strategy combines static estimators (pooled OLS, fixed and random effects) with dynamic System GMM and LSDVC estimators to address persistence, endogeneity and unobserved heterogeneity. Mediation is assessed through a Baron and Kenny procedure in the dynamic setting, while moderation is examined via the ESG × BFS interaction term. ESG engagement significantly reduces BRT, confirming a risk-disciplining role. ESG also increases LC, and higher LC is associated with lower BRT, supporting partial mediation of the ESG-risk link through LC. The ESG × BFS interaction is negative and statistically significant, indicating that stable, deposit-based funding strengthens the risk-reducing impact of ESG. Results are robust across static, System GMM and LSDVC estimators. This study advances ASEAN-5 banking research by examining the intermediation channel through which ESG activities affect BRT, specifically LC mediation and BFS moderation, within a unified dynamic framework. By doing so, it complements prior ASEAN-5 evidence on the ESG-AI digital-capability channel and links sustainability policies, intermediation behaviour, and liability structure in emerging ASEAN economies.