Determinants of capital adequacy in global banking: key environmental, social, and governance indicators across countries

This research investigates which specific Environmental, Social, and Governance (ESG) indicators most strongly influence banking stability, as measured by the Bank Capital to Asset Ratio, across 80 countries over four years. The research addresses a key question in the ESG-finance literature: which individual ESG metrics are most relevant for reinforcing capital adequacy in the banking sector? Drawing from a dataset of 37 ESG indicators, we apply a best subset selection procedure and Least Absolute Shrinkage and Selection Operator (LASSO) techniques to identify the most significant predictors within each ESG category. To confirm the findings and ensure robustness, we employ a meta-learning framework that integrates ensemble machine learning models, including Gradient Boosting Machines and eXtreme Gradient Boosting (XGBoost), as well as Generalized Linear Models. Results reveal that the most influential environmental indicator is the value added by agriculture, forestry, and fishing as a share of GDP; for the social dimension, the under-five mortality rate per 1,000 live births is most predictive; and in the governance domain, the number of published scientific and technical journal articles emerges as the leading factor. These results show evidence that targeted ESG metrics are instrumental in influencing banking resilience. The study gives actionable understandings for regulators and financial institutions aiming to align ESG integration with capital adequacy objectives and broader sustainability strategies.