Global uncertainty and ESG risk management: do they alter the association between financial performance and sustainability orientation?

Abstract

This study examines the relationship between banks’ financial performance (FP) and sustainability orientation (SO) amid the polycrisis, global shifts, and uncertainty. Drawing on Resource-Based, Stakeholder, and Institutional Theories, we apply Partial Least Squares Structural Equation Modelling to data on 565 listed banks in 2024 across 53 countries to test whether unmanaged ESG risks (UMR) mediate and whether bank size (BS) and country-level uncertainty moderate this association. Our findings reveal a negative direct association between FP and SO. However, FP is also associated with lower UMR, which negatively affects SO, generating a positive indirect mediation effect. Consequently, the total effect of FP on SO is weak and non-significant because these opposing forces offset each other (competitive mediation). Notably, uncertainty adds further context: while it directly reduces SO, it also positively moderates the FP–SO association, indicating that banks with varying profitability levels respond diversely to uncertainty. BS also influences this association, becoming more negative as total assets increase. Overall, our findings contribute to sustainability research by decomposing the FP–SO association: while higher FP is directly associated with lower SO, it also enhances ESG risk management and resilience against uncertainty, both of which pull a bank back toward greater SO.