Purpose This study aims to examine the impact of Environmental, Social and Governance (ESG) risk on the performance of the banking industry in Indonesia, with a specific focus on the effect of ESG risk on Islamic bank performance. Design/methodology/approach By using an unbalanced panel data analysis covering 148 commercial banks from 2003 to 2022, this study examined the relationship between ESG risk and bank performance, using return on assets, return on equity and Net Interest Margin as key performance indicators. Findings The findings of this study reveal that increasing ESG risk has a negative and significant impact on Islamic bank performance compared to conventional banks. This suggests that Islamic banks face more significant challenges in maintaining profitability when exposed to heightened ESG risks, supporting the hypothesis that higher ESG risks reduce Islamic bank performance. Originality/value This study provides new insights into the relationship between ESG risk and bank performance by addressing a significant gap in the existing literature. While previous research has focused on ESG performance, this study specifically examines how ESG risk impacts bank profitability, particularly in the context of Islamic banks.
Yudaruddin et al. (2025) studied this question.