A Review of ESG Integration and Climate Risk Disclosure Effects on Bank Valuation and Financial Stability

Abstract

This critical review examines how ESG integration and climate risk disclosure affect bank valuation and financial stability. It synthesises a screened, DOI-verified evidence base of 250 sources published through 2021, drawn primarily from banking, finance, and disclosure journals and supplemented by cross-domain risk-governance and audit literature used explicitly as analogical evidence. The synthesis evaluates theory, measurement, governance, analytical methods, performance effects, and reported limitations across three organising themes: conceptual and theoretical foundations, ESG-to-valuation transmission channels, and climate-risk transmission into financial stability. The evidence indicates that credible effects depend on decision-useful metrics, comparable disclosure, governance accountability, and the translation of climate exposure into conventional risk channels such as credit risk, cost of capital, and systemic interconnectedness. Building on stakeholder, legitimacy, signaling, and financial stability theory, the paper contributes a mechanism-based model connecting disclosure quality, risk pricing, stakeholder confidence, bank valuation, and system resilience, and it identifies where the reviewed evidence is well established for banks, where it is only plausible by analogy with adjacent risk-management research, and where it remains untested. It also develops four testable propositions and a practical research agenda for stronger validation, transparency, and institutional comparison.