The twenty-first century has made sustainability a maxim. According to (Dyllick & Hockerts, 2002), the idea aims to spur social progress toward an understanding of the importance of treating our environment fairly. Due to the increased worldwide comprehension of environmental, social, and financial issues over the past ten years, sustainability and sustainable development vocabulary have become more popular (Nájera-Sánchez, 2020), and are one of the most crucial management subjects, as indicated by previous literature such as (Glavič & Lukman, 2007) and (Perdana et al., 2023). Consequently, the importance of sustainable investments in the world of international financial decision-making has grown over the past several years. Investment strategies were integrated with sustainability by Investors, as a result of increased awareness of the three main aspects, including environmental, social, and governance (ESG) (Onuselogu & Shahzad, 2023).

As a result, the dimensions of ESG were tackled by corporate policies, where the first significant companies to attempt integrating ESG sustainability principles into their business models also developed numerous selfregulatory schemes (Vitell & Hidalgo, 2006). According to (Agudelo et al., 2019), ESG practices have been increasingly popular across companies as well as countries over the course of the subsequent 20 years. Beneficial reaction from institutional and civil society actors has accelerated their spread. Regardless of the widespread praise that ESG practices have received, as mentioned by (Carter et al., 2023), there is still a sizable minority of laggards, and there is a substantial cross-firm variation in compliance with ESG policies.

The existence of businesses that do not adhere to ESG norms is one factor that calls into question the financial benefits of ESG practices. It is uncertain from an economic standpoint, as indicated by several studies (Gillan et al., 2021)(Ozili, 2023)Taj et al., 2023), whether and how ESG policies might impact firms` financial performance. Financial systems as a whole, including Investors, managers, and financial institutions, have begun focusing on environmental, social, and governance (ESG) issues, in particular, from an economic perspective. As a component of financial systems, banks have begun to incorporate sustainability into the core of their operations by including environmental, social, and governance (ESG) elements in their goods and services design, procedures for managing risk, strategic plans, and mission statements. This is due to the significant danger that ESG and climate change pose. A meeting at the Bank Governance Leadership Network (BGLN) in London was scheduled to explore how existing banks are addressing climate risk and sustainability in general. In order to discuss how banks could tackle sustainability, the meeting combined four primary subjects: communicating sustainability methods, responding to shifting climate issues, addressing issues, and assessing green finance opportunities (Al Breiki & Nobanee, 2019).

As reflected previously by (Benau et al., 2022) and (Gutiérrez Ponce et al., 2022), companies from various industries and geographical areas are used to investigate the impact of sustainability development and financial indicators. The findings of specific financial research linking ESG and financial performance are dependent on the regulatory environment in each part of the world. After the 2008 financial crisis, studies including Shakil et al. (2019), (Buallay, 2020), and (Simsek & Cankaya, 2021) have revealed notable discrepancies between different countries in this regard. To cover a significant research vacuum in sustainability for developed countries, this study aims to examine the impact of sustainability development on banks` financial performance in the United Kingdom, which, to the author's knowledge, has not been applied to banks in the UK or at least has not received much attention to date.

This study makes significant contributions to the body of literature. First of all, it builds on past studies that examined the link between sustainable development and various elements of companies' performance. It also adds to the body of knowledge on bank performance that examines sustainable development as a key performance indicator in the banking industry. Second, the findings raise awareness of ESG practices in British banking, which eventually has an effect on the international banking industry's sustainable expansion.

According to (Ozili, 2022), "Defining sustainability is not an easy task. The literature shows that sustainability is a philosophy, approach, or practice that guides the use of today's resources in an efficient manner to ensure that resources are available and sufficient to meet today's needs and the needs of future generations. Sustainability is also defined as the ability to make responsible decisions in using and allocating resources to economic and noneconomic activities in an effort to achieve certain desired social, economic, and environmental outcomes. He also added that many nations have committed to achieving the Sustainable Development Goal, which is regarded as the culmination of the United Nations' global development strategy.

The UN Global Compact's publication of the study "Who Cares Wins" provided the groundwork for ESG aspects of economic activity, highlighting the significance of ethics in finance (Vigolo et al., 2025). The focus of the environmental concerns includes air and water quality, biodiversity, and climate change. It assesses a firm commitment to reducing emissions, maximizing the efficient utilization of natural resources, and maximizing energy effectiveness. The social element, on the other hand, focuses on the society where the company operates and incorporates the company's compliance with rights in society, equal treatment, and gender equality. It also aims for fair conditions for employees and inclusion within the community. The firm's dedication to transparent accountability and compensation, as well as a fair division of duties across the stockholders, are all aspects of the governance component (Eccles et al., 2014).

Banks are the basic building block of financial systems, and using sustainable banking practices has significant implications for sustainable development. Bank deposits are generally funds that banks receive from account holders. Investors who ask for credits are given money from their cumulative deposits. Banks are regarded as among the more important financial entities in the bank-based monetary system for easing the flow of money between savers and investors. Many banks significantly improved their internal systems for environmental management in order to lower their environmental impact. Borrowers' actions and the financial goods they are provided have an indirect effect on the natural environment and society. Consequently, the banks' products don't directly affect the environment; however, consumers of financial products may have an impact on others and the natural environment through how they behave. As a result, the investments, credit decisions, and additional financial services provided by banks may adversely impact both individuals and the natural environment indirectly. Nevertheless, banks transform cash with regard to volume, time frame, place, and hazard as financial intermediaries. Therefore, the role of a bank's hazard assessor is crucial to achieving the objective of sustainable growth. (Yüksel et al., 2016). Nevertheless, by putting protection and modification methods in place, some risks associated with the reporting of sustainability might be mitigated. (Almansoori & Nobanee, 2019).

Regardless of that, there are more considerations recently (by managers, decision and, policy makers, shareholders, and investors) in regard to ESG practices according to (Cerciello et al., 2022), but initial researches date back to 1970 as indicated by (Friede et al., 2015). This makes them a significant tool in the process of making decisions by providing more information on financial indicators. The products offered by businesses with an effective ESG focus are more desirable from the perspective of the consumer since they contain greater sustainability. In addition, the shares of companies that prioritize ESG standards tend to be less hazardous for investors (Benau et al., 2022). As (Cerciello et al., 2022)mentioned, over one hundred appraisal agencies, like Morgan Stanley Capital International, Thomson Reuters, and Bloomberg, offered ESG data starting in 2016. The companies' willingness to publish data about ESG (sometimes separate reports) has increased as the importance of ESG has increased. This can be true as (Coppola, 2018) shows that the percentage of listed firms that introduce reports of ESG in the S&P 500 had increased by almost 70% between 2011 and 2018. Moreover, the portfolio choice decisions of investors in Europe become more connected with ESG reports` information, as mentioned by (Amel-Zadeh & Serafeim, 2018).

Environmental, Social, and Governance concerns are now essential components of business strategy. Even though these topics have been investigated from a variety of angles, attempts to measure these concepts in various organizational and cultural contexts have led to inconsistent and varying outcomes in their examination of the effect of ESG practices on financial performance (Galant & Cadez, 2017). Likewise, as stated by (Galletta & Mazzù, 2022), since the banking industry was not thought to be implicated in the problem of climate change, the body of research on environmental, social, and governance performance in the banking industry has grown significantly over the last ten years. Regulators have sparked this paradigm shift by bringing up the sustainability issue in finance and encouraging academics to research the effects of sustainability in the financial sector.

The financial performance metrics (ROA and ROCE) and ESG, GPS, according to (Nollet et al., 2016), are related in a U-shape. For S&P 500 companies, they did not discover any appreciable non-linear associations among financial performance indicators. In Australia, ESG and profitability were investigated by (Gholami et al., 2022), including both financial and non-financial enterprises. They claimed that more profitable firms are related to higher ESG performance. The relationship between both financial and non-financial enterprises was different, though. ESG and share price movement in Latin European and Nordic samples were not shown to be significantly correlated. The US banks were targeted by (Brogi & Lagasio, 2019); it was revealed that ROA was impacted positively by ESG. In addition, (Buallay, 2020) introduces comparative research considering how financial, operational, and market performance are affected by ESG reports targeting 80 countries` banking and manufacturing industries. The results show that all these performance types are impacted by ESG in the banking and manufacturing industries. Moreover, it was found by (Nizam et al., 2019) that the financial performance of 713 banks in 75 countries is impacted positively by environmental finance. Further, the European banking sector was selected by (Buallay, 2019) to analyze the impact of ESG on Tobin`s Q, and the impact was found to be positive and significant. The banking sector in Sub-Saharan Africa reflects a positive impact on financial performance through social responsibility development, as examined by Siueia et al. (2019). Furtherly, the Jordanian firms are employed by (Azzam et al., 2020), who show that ESG has a significant positive impact on the financial performance in Jordan. Bually et al. (2019) applied research on 530 banks and 392 manufacturing firms from 80 different countries, and they found that bank performance is impacted negatively by ESG practices.

Buallay also wrote another study with other researchers (Buallay, 2020), ESG practices were found to negatively impact the market value (by Tobin`s) of MENA banks. Furthermore, (Zhou et al., 2022) examined the effect of ESG performance on financial performance; they observed that listed companies' improved ESG performance increased their market value. Additionally, bank value is impacted negatively by ESG scores as reflected by (Tommaso & Thornton, 2020). Banks in the European Stock Market are employed for investigating sustainability reports on bank value. This research by (Setyaningsih & Wibowo, 2024) investigation reveals a significant negative and insignificant positive impact on share price and earnings per share, respectively. Furthermore, as found by (Bolton, 2022), the value of US banks is related to social performance. Malaysian companies were targeted by (Atan et al., 2018), who demonstrated that there is no correlation between ESG and company value as determined by Tobin's Q.

The previous literature reflects that the impact of ESG practices (performance, scores, and elements) on financial performance is contradictory. This proves that each part of the world has special features that distinguish it from others, and the results of studies cannot be generalized (Gutiérrez Ponce & Wibowo, 2023), and(Yavuz et al., 2025). Therefore, this research aims to extend the current literature in this regard, and accordingly, the hypotheses development will be reflected in the following.

As discussed by (Perdana et al., 2023), the classical concept in finance focuses on the fact that firms mainly aim to maximize shareholders' profits. Accordingly, the financial statements' improvement is the core focus of companies as it is the source of shareholders` accountability. They argue that commitment to environmental, social, and governance (ESG) activities results in maximising costs, which, in turn, impacts firm value and financial performance adversely. On the other hand, poor financial performance due to irrational management can be justified by the excuse of commitment costs. However, regardless of the fact that the ESG practices` cost can be a shelter for justifying poor performance, but, as stated by (Teye-Ali, 2025), recovering reputation after the global financial crisis left companies with no option except to focus more on ESG. This has also been approved recently by (Shui et al., 2025), "Amidst the escalating challenges of global climate change and environmental crises, sustainable development has emerged as a global consensus. Governments worldwide, international organizations, and various sectors of society have increasingly focused on environmental protection, social responsibility, and corporate governance.

According to (Nizam et al., 2019), (Shakil et al., 2019), (Aydoğmuş et al., 2022), (Rao et al., 2023), (Meini & Setijaningsih, 2024), and (Shui et al., 2025), despite the expanding interest in the impact of ESG and companies` financial performance, the existing literature is still limited; some of these studies indicate that the banking industry in particular faces a shortage in studies. In addition, the current literature indicates that there is no consensus in outcomes regarding ESG and financial performance, where a positive impact is revealed by various studies, such as (Atan et al., 2018)(Buallay, 2019), (Shakil et al., 2019), (Bartolacci et al., 2020), (Boakye et al., 2020), (Broadstock et al., 2021), (Aydoğmuş et al., 2022), (Zhou et al., 2022), and (Shui et al., 2025). While other studies found either a negative or insignificant impact, this includes (Utz, 2018), Srour (2022), (Rao et al., 2023), and Intezar et al. (2024). Therefore, this study aims to analyze the effect of ESG on financial performance. (Meini & Setijaningsih, 2024). The impact of ESG on firm value: Empirical study on Indonesia and Singapore companies. EQUITY, 27(2), 128-146.

The recent international interest and initiative in the profile of sustainable development at all levels has forced firms to change their way of dealing with society, environment, and governance. In turn, this put high pressure on firms in terms of cost or efforts to do so and comply with ESG values. Banks are a part of this, and more importantly, banks are one of the funding sources for ESG applications. Banks are put under pressure, like other companies, to comply with ESG practices. This has for sure impacted banks' financial performance.

The previous literature identifies various studies on whether ESG practices impact banks` financial performance, but these studies' outcomes cannot be generalized internationally. In addition, the banks in the UK have not been examined by previous literature in terms of ESG implication on financial performance. Consequently, this study aims to reveal the impact of ESG on banks' financial performance in the United Kingdom.

This study formulates a main regression model to be applied three times based on the selected variables of this study, where the ESG score is the independent variable, while ROA, ROE, and market value are the dependent variables.

The findings show that the ESG score has a significant positive impact on ROA, a significant negative impact on ROE, and an insignificant negative impact on market value.

It is recommended to apply such a study to broaden banks in the UK and other countries. In addition, an investigation into the impact of ESG on financial performance in other sectors in the UK to reveal how it differs. Further, research on which is the most important element of ESG is dominant in the UK banking sector.

The abstract of this paper was presented at the Business Management, Entrepreneurship, and Sustainable Circular Economy (BLE) Conference, which was held on the 04 th -06 th of November 2024.