This study aims to examine how environmental, social and governance (ESG) activities influence bank risk-taking (BRT) in the Association of Southeast Asian Nations (ASEAN)-5 region, emphasizing the mediating role of artificial intelligence (AI) adoption. It explores how ESG engagement and AI integration jointly enhance sustainable banking practices, strengthen risk governance and foster data-driven financial discipline across emerging banking systems.
This study uses a dynamic panel of 62 listed banks from Indonesia, Malaysia, the Philippines, Singapore and Thailand over the period 2015–2024. A novel AI Adoption Score is developed to capture bank-level digital readiness. To address endogeneity, autocorrelation and unobserved heterogeneity, the analysis applies the two-step system generalized method of moments estimator and tests mediation using Baron and Kenny’s (1986) four-step mediation model. The study is theoretically grounded in Stakeholder Theory and Dynamic Capabilities Theory.
The results indicate that ESG activities and their individual pillars significantly reduce BRT among ASEAN-5 banks. AI adoption partially mediates these relationships, amplifying the risk-reducing impact of ESG by enhancing monitoring, credit quality and compliance, while aligning institutional practices with Basel III and other global regulatory frameworks. Overall, the integration of ESG and AI fosters more resilient, transparent and sustainable banking systems across emerging markets.
This paper contributes to the sustainable finance literature by conceptualizing AI adoption as a mediating channel through which ESG activities influence BRT. It offers novel insights for policymakers and financial institutions in emerging economies, emphasizing the need to institutionalize AI-enabled ESG frameworks that integrate sustainability into core risk governance. By linking ESG discipline with digital transformation, the paper advances understanding of how banks can align sustainability with regulatory compliance and strengthen long-term financial performance.
