This paper aims to explore how ownership structure impacts environmental, social and governance (ESG) performance in banks, with a particular focus on Islamic banks. It also assesses whether bank risk and board characteristics influence the relationship between ownership structure and ESG performance.
This study analyzes a sample of 48 commercial banks from the Gulf Cooperation Council (GCC) countries over the period from 2013 to 2022. The primary empirical methodologies used are structural equation modeling and the generalized least squares technique. To ensure the robustness of the findings, alternative methodologies, including the two-stage least squares technique and the two-step system generalized method of moments approach, as well as various measures for ESG, bank risk and ownership structure, are also used.
The empirical findings reveal a negative relationship between ownership concentration and ESG performance, while institutional and foreign ownership positively contributes to ESG performance. This relationship is mediated by the bank’s risk attitude and moderated by board characteristics. Additionally, a significant difference is observed between conventional and Islamic banks, as well as based on bank size and the level of ESG performance.
Regulators should enforce ownership diversity rules (e.g. shareholding caps, tax incentives) and mandate Sharia-aligned ESG disclosures and governance audits; bank managers must embed ESG risk assessments, internal sustainability audits, strengthened board independence and diversity, plus targeted sustainable finance training; and investors need to integrate standardized ESG ratings (MSCI, Sustainalytics) into their analyses and engage proactively with both conventional and Islamic banks to drive faith-compliant sustainability initiatives.
Enhanced ESG performance across GCC banks will mobilize capital toward environmentally and socially responsible projects, support SMEs and reinforce regional economic stability. By elevating transparency and governance, especially within Islamic banking frameworks, the region’s financial institutions will attract responsible international investment, bolster their global reputation and contribute to more inclusive, resilient growth and broader social welfare.
Given the limited research on this topic, this paper initiates a discussion on the impact of ownership structure on ESG performance in GCC countries. Using a substantial sample of both conventional and Islamic banks, the study emphasizes the significance of bank risk and board characteristics, which should be considered when implementing ESG investments and practices.
