This study investigates the non-linear relationship between ESG performance and banking stability in the digital era for European banks (2005-2022). Using a regime-switching model, it identifies three ESG performance regimes. High ESG scores correlate with lower bank failure risk, supporting stakeholder theory. However, banks with weak ESG scores experience increased fragility from technology investments. The findings suggest a nuanced relationship, with low/moderate ESG aligning with the classical shareholder view, and high ESG aligning with the stakeholder view. Policy implications emphasize improved sustainability in digital strategies and strengthened regulatory support for digitization and social responsibility.

Afef Bouattour, Maha Kalai, Kamel Helali