Integration of Environmental, Social and Governance Principles in Commercial Banks: A Study on Their Impact on Risk Management, Credit Decision-Making, and Long-Term Performance

Against the backdrop of intensifying global climate risks, an increasingly sophisticated regulatory framework, and growing stakeholder awareness of sustainable development, the Environmental, Social and Governance (ESG) philosophy has become a core guiding principle for transformation and upgrading in the financial sector, driving significant innovation in commercial banks' traditional risk assessment and operational management frameworks. This paper employs a literature review approach to systematically examine the logical relationship between commercial bank performance and the ESG philosophy. It integrates relevant policies and regulatory documents—such as those pertaining to climate risk management and sustainable finance frameworks—to focus on exploring specific pathways for incorporating ESG principles into commercial banks' risk management systems and credit decision-making processes. The study analyzes the mechanisms through which ESG factors influence banks' long-term operational performance and sustainable development capabilities, and compares differences in the implementation of ESG practices among commercial banks in various countries. The research findings indicate that ESG factors represent a significant extension and expansion of commercial banks' traditional risk management systems; they can effectively address the limitations of risk identification based on traditional financial indicators and help standardize banks' credit resource allocation practices.