Do ESG Initiatives Improve the Performance of Saudi-listed Banks? The Moderating Effect of Bank Size

Abstract

This study investigates the influence of bank size on the connection between ESG (Environmental, Social, Governance) initiatives and banks' financial performance in Saudi Arabia. Using data from 10 Saudi Arabian banks spanning 2014 to 2023, we analyze the influence of ESG initiatives by considering various indicators. Specifically, we used social responsibility (SR) initiatives to measure social aspects, environmental initiatives to measure the environmental aspect, and governance mechanisms to measure the governance aspect. Our observations indicate that environmental initiatives, social responsibility initiatives, and gender diversity have notable adverse effects on the return on assets (ROA). Additionally, social initiatives, board gender diversity, board independence, and audit committee activities have a negative impact on return on equity (ROE), whereas the number of board members had a positive impact on ROE. Bank size negatively moderates the relationship between board gender diversity and financial performance and positively moderates the relationship between audit members and ROA. These findings indicate that the impact of ESG initiatives on financial performance may depend on bank size.