ESG PERFORMANCE AND FINANCIAL CONSTRAINTS OF BANKS IN MENA: THE MODERATING ROLE OF POLITICAL INSTABILITY

Abstract

The impact of Environmental, Social, and Governance (ESG) performance on financial constraints in politically volatile emerging markets remains underexplored, particularly in the Middle East and North Africa (MENA) region. This study explores how ESG performance affects banks’ financial constraints in MENA, and how political instability moderates this effect. The fixed effects model was used to analyse panel data from 182 banks in 14 MENA countries (2019–2023). This study showed that ESG performance negatively affects financial constraints, with environmental performance and governance practices having the greatest influence. However, social performance provides varying financial rewards, reflecting stakeholders' interests under uncertain circumstances. Political instability strengthened the negative effect of ESG on financial constraints. These findings challenge global ESG paradigms and advocate context-specific remedies that increase economic resilience and governance in fragmented institutional markets. This research synthesizes agency, stakeholder, and institutional perspectives to improve theoretical implications and offer practical recommendations for emerging national banks dealing with sustainability and political instability.