Ahlem Selma Messai
This study investigates the dynamic relationship between risk-taking, capital adequacy, and operational efficiency in the MENA banking sector, with a particular emphasis on the role of ESG performance in shaping sustainable financial behavior. Using an unbalanced panel of 167 commercial banks from 2015 to 2024, we develop a three-equation framework and estimate it using the two-step System-GMM method to address endogeneity, simultaneity, and dynamic effects. The empirical results reveal significant interdependencies among risk, capital, and efficiency, confirming the existence of a sustainable risk–capital–efficiency nexus. The results reveal that bank risk is strongly persistent; however, ESG performance significantly mitigates credit risk, particularly through its social and governance dimensions, which enhance transparency, borrower discipline, and stakeholder trust. Efficiency also acts as a stabilizing force by reducing overall risk. Capital adequacy is positively influenced by ESG performance and efficiency, indicating that sustainable and well-managed banks maintain stronger capital buffers and more resilient balance sheets. Furthermore, bank efficiency improves with profitability, capitalization, favorable macroeconomic conditions, and socially oriented ESG engagement. These findings demonstrate that ESG adoption is a strategic driver of financial soundness, simultaneously lowering risk, reinforcing capital strength, and enhancing operational performance. The paper offers important implications for regulators and bank managers, highlighting the need to embed ESG metrics into supervisory frameworks, risk-management systems, and long-term strategic planning.