ESG disclosure and sustainable financial performance: the mediating role of institutional ownership in Tanzanian commercial banks

Abstract This study examines whether environmental, social and governance (ESG) disclosure is associated with sustainable financial performance (SFP) and whether institutional ownership (IO) mediates this relationship in Tanzanian commercial banks. Using a balanced panel of ten large commercial banks over 2015–2024, the study employs two-way fixed effects models with wild-cluster bootstrap inference. SFP is measured using return on assets (ROA), return on equity (ROE), and the bank Z -score to capture profitability and financial resilience. The results indicate that ESG disclosure is positively associated with all three SFP measures, with stronger evidence for ROA and the Z -score than for ROE. Higher ESG disclosure is also associated with greater institutional ownership, which in turn is positively related to SFP. Mediation analysis indicates a positive indirect pathway through IO alongside significant direct ESG associations, consistent with partial mediation. The study contributes theoretically by distinguishing the stakeholder, legitimacy, and agency roles in explaining how ESG disclosure may acquire financial relevance through institutional ownership. It contributes empirically by identifying institutional ownership as a partial transmission pathway linking ESG disclosure with both bank profitability and financial resilience in an emerging market banking context.