ESG Disclosure Quality and Bank Profitability: Evidence From Indian Commercial Banks

Abstract

Purpose

This study explores how the quality of Environmental, Social, and Governance (ESG) disclosures influences the financial performance of Indian commercial banks. In addition, the research evaluates whether corporate reputation, operational efficiency, risk management capability, and investor confidence act as mediating mechanisms between ESG disclosure practices and profitability outcomes.

Methods

A quantitative panel-data approach was adopted using data collected from 30 Indian commercial banks covering the period from 2021–2022 to 2025–2026. Information was gathered from annual reports, sustainability disclosures, the Refinitiv ESG database, and CMIE Prowess. The analysis employed descriptive statistics, correlation testing, pooled OLS regression, and GLS estimation techniques. Furthermore, mediation effects were examined through Structural Equation Modeling (SEM) using AMOS software.

Findings

The empirical results indicate that high-quality ESG disclosure positively contributes to bank profitability, particularly in terms of Return on Assets (ROA) and Return on Equity (ROE). The findings further show that investor confidence and corporate reputation serve as strong mediating factors in strengthening the ESG–profitability relationship. Operational efficiency and risk management efficiency also demonstrate meaningful indirect effects. Overall, transparent ESG reporting enhances stakeholder trust, strengthens financial resilience, improves operational effectiveness, and supports long-term sustainability performance.

Practical Implications

The study highlights the need for Indian commercial banks to embed ESG reporting and sustainability-oriented governance into their strategic and operational frameworks. The findings are valuable for policymakers, banking regulators, investors, and financial institutions in designing transparency standards and sustainable finance initiatives that enhance institutional credibility and long-term competitiveness.

Originality/Value

This research enriches the sustainable finance literature by offering empirical evidence from the Indian banking industry on the relationship between ESG disclosure quality and profitability. Unlike earlier studies that mainly focused on direct associations, this study introduces multiple mediating variables to explain the pathways through which ESG disclosure affects financial outcomes. Consequently, the research provides a broader understanding of sustainable banking practices in an emerging economy.