ESG and bank stability in MENA region: examining the mediating role of income diversification

Purpose This study aims to investigate the impact of environmental, social and governance (ESG) practices on bank stability in the MENA region and explore the mediating role of income diversification. Design/methodology/approach Based on a panel of 109 banks from 11 MENA countries over 2011–2022, the structural equation modeling was used to examine the relationships between ESG practices, income diversification and bank stability. The mediation effect of income diversification is estimated using bootstrap analysis. Findings ESG adoption positively influences bank stability, with income diversification playing a significant mediating role. Among the ESG dimensions, environmental practices exert the strongest effect, followed by governance practices. Originality/value To the best of the authors’ knowledge, this is the first study in the MENA banking context to examine income diversification as a mediator between ESG practices and bank stability, providing novel insights into how ESG integration contributes to financial resilience.