The Nexus Between ESG Integration and Capital Structure in Banks: A Systematic Review of Determinants and Mechanisms

Abstrak

This study aims to answer the question of how ESG integration affects the determinants of a bank's capital structure, considering that the systematic understanding of this nexus remains fragmented in the literature. This study employs a Systematic Literature Review conducted following the PRISMA 2020 guidelines by searching the Scopus database, yielding 298 documents. After gradual screening, 84 high-quality studies published between 2013 and 2024 were analyzed using a narrative synthesis approach. The findings suggest that ESG appears increasingly important as an emerging determinant of a bank's capital structure, with 65.5% of studies identifying ESG as a notable factor associated with shifts in the role of profitability relative to traditional determinants. Four mechanisms were identified: adjustment effects that affect the relative importance of traditional determinants, mediation mechanisms through financial performance and risk profiles, conditional effects based on firm-level and market-level contexts, and temporal effects suggesting increasing relevance observed since 2020. Relationship patterns showed that 53.8% of studies identified positive associations between ESG and leverage capacity, 23.1% negative associations, and 15.4% conditional effects. The temporal distribution reveals that 65.5% of studies were published in 2022–2024, indicating a notable increase in scholarly attention in this field. The findings contribute to ongoing efforts to incorporate ESG dimensions into capital structure theory and carry practical implications for bank management in capital planning, investors in evaluating sustainability strategies, and policymakers in designing prudential regulations that account for ESG considerations.