Environmental Accounting Disclosures and Financial Performance: Evidence from the Banking Sector

Abstract

This study aims to investigate the impact of environmental accounting disclosures on the financial performance of banks listed on Borsa Istanbul (BIST). In this study, sustainability and integrated reports for 2019–2023 are analyzed, and environmental accounting disclosures are classified into two categories as operational and financial activities. Using the Environmental Accounting Reporting Score, the relationship with financial performance indicators such as return on assets, return on equity, earnings per share, and profit margin is analyzed using the seemingly unrelated regression (SUR) method. The results show that environmental accounting disclosures do not have a direct and statistically significant effect on financial performance. However, control variables such as bank size, debt-to-asset ratio, and loan-to-asset ratio are found to have a positive effect on financial performance. In particular, larger banks tend to have higher profitability and earnings per share, while higher non-interest expenses have a negative impact on profitability. The study shows that the direct contribution of environmental accounting practices to financial performance is limited, but that banks’ operational and financial structures are greater determinants of performance. These findings highlight the need for improvements in areas such as standardization of sustainability reporting, stakeholder awareness, and environmental risk management for policy makers and banks.

1. Introduction

Corporate entities function within their surrounding environment, utilizing resources from it and producing final or intermediate goods that are returned to the environment. This activity creates externalities, encompassing both the positive and negative impacts that the organization has on its environment [1]. In order to monitor the mandatory expenditures made by companies to eliminate the damage they cause to the environment, the practice of environmental accounting has been put on the agenda [2]. Environmental accounting, also known as green accounting, involves integrating data on a company’s environmental impact into its financial reporting. Through this approach, stakeholders such as governments, financial institutions, and users of financial statements gain insight into the company’s environmental protection initiatives via detailed environmental accounting reports [3].

Environmental accounting is an accounting discipline that measures, analyzes, and reports the impact of an organization’s activities on the environment [4,5]. This discipline covers both financial and non-financial information and enables organizations to monitor, manage and transparently report their environmental performance to stakeholders [6,7]. Environmental accounting addresses issues such as the use of natural resources, waste management, energy consumption, greenhouse gas emissions, and other environmental impacts. Therefore, elements such as land, soil, vegetation, forests, water, air, atmosphere, sea, carbon, waste, and the social and environmental responsibilities of companies are part of environmental accounting [8]. It aims to create a better relationship between financial and environmental performance, including environmental sustainability in organizational culture and performance, by providing decision makers with the necessary information to reduce business costs and risks, thereby adding value [9]. The core components of environmental accounting information encompass integrated environmental, social, and financial data. As a result, environmental accounting serves as a form of accounting that presents, in a unified reporting structure, initiatives with which to integrate environmental and social considerations into the economic decision making processes or financial outcomes of an organization [8].

The disclosure of environmental accounting information, as a key component of environmental reports, allows stakeholders reviewing these data to gain insight into a company’s approach to environmental protection and the specific measures it takes to address environmental challenges [10]. These disclosures serve as an important source of information for investors, stakeholders, and other interested parties who wish to evaluate the company’s environmental performance, sustainability efforts, and environmental impacts. Additionally, they enhance transparency and build trust by demonstrating how the company fulfills its environmental commitments and responsibilities in this area. This type of information also holds significant importance for the company’s long-term sustainability and its overall reputation [1].

The disclosure of environmental information began with environmental reporting. In subsequent years, sustainability reports were published in place of environmental reports. Today, these reports have been replaced by integrated reports, which encompass all types of reporting [11].

Sustainability reports provide stakeholders with information about the environmental, social, and economic impacts of a company’s activities [12]. An integrated report is a comprehensive report that includes not only financial data but also the non-financial aspects of a company, such as its environmental, social, and governance performance. One of the differences between sustainability reports and integrated reports is that sustainability reports provide information to a broad group of stakeholders, while integrated reports are specifically aimed at providing information to investors [13].

Nowadays, a growing number of businesses are disclosing not just their financial performance but also their non-financial activities. This shift is driven by stakeholders’ heightened focus on companies’ social and environmental practices, alongside the rising legal requirements for the disclosure of non-financial reports [14].

Türkiye has implemented the Türkiye Sustainability Reporting Standards (TSRS) in 2023, which are fully aligned with the reporting criteria established by the International Sustainability Standards Board (ISSB). According to the decision taken within the scope of the Türkiye Sustainability Reporting Standards, “Sustainability Reporting” has been made mandatory for businesses meeting specific criteria as of 1 January 2024. Under the Turkish Banking Law enacted in 2005, banks regulated and supervised by the Banking Regulation and Supervision Agency (BDDK) are subject to mandatory reporting obligations (ticaret.gov.tr). Therefore, banks regularly publish their sustainability-related reports.

In emerging markets, the banking sector is regarded as the “engine of economic growth” [15]. Banks play a significant role not only in contributing to the economic development and social welfare of countries but also in shaping their sustainable development [16]. Principles such as environmental sustainability, safe workplace conditions, equity, and regional or local development within the framework of global integrity are becoming increasingly significant in the banking industry. Moreover, banks engage extensively with the environment, both directly and indirectly, through their resource usage, lending practices and investment strategies [16,17].

Businesses, within the framework of practices such as sustainability, transparency, and accountability, report on sustainability and environmental impacts while fulfilling their responsibilities to society and building stakeholder trust. At the same time, they aim to maintain a strong financial structure. Effectively managing environmental risks and maintaining a sustainable financial framework will provide a competitive advantage. Therefore, this study focuses on environmental accounting disclosures and their impact on financial performance. This study aims to investigate the impact of banks’ environmental accounting disclosures on their financial performance. In the study, 17 subcategories that could serve as indicators of environmental accounting reporting were identified, taking into account the “Sustainability Guide for the Banking Sector” and a literature review. These subcategories were grouped under two main categories: operational and financial environmental practices. By examining the sustainability reports and integrated reports of banks listed on Borsa Istanbul (BIST), the Environmental Accounting Reporting Scores (EARSs) of the banks were calculated. The relationship between the banks’ Environmental Accounting Reporting Scores (EARSs) and their return on assets (ROA), return on equity (ROE), earnings per share (EPS), and profit margin (PM) was analyzed.

There are numerous studies on sustainability reporting by banks in Türkiye. However, despite the sector’s intensive interaction with the environment, only one study [18] focusing solely on environmental accounting disclosures was found within the scope of the authors’ research. In Çizgici Akyüz’s [18] study, only carbon dioxide (CO₂) emissions were used as an environmental performance indicator. This study is unique in that it is the first to consider all environmental indicators that need to be reported. Another aspect that makes this study distinctive is that, while previous studies have mostly examined different sectors or all sectors collectively within the scope of BIST, this study focuses exclusively on the banking sector, aiming to fill a gap in the literature. Another important feature that sets this study apart from others is the dependent and control variables used. It is more comprehensive in terms of its number of variables compared to other studies, and it enriches the analysis by including variables that have not been used in previous studies on this topic. This enhances the originality of the study and creates a meaningful contribution to the literature.

This research is divided into five main sections. In the introduction section, information is provided about environmental accounting and the reporting of environmental information. Additionally, sustainability reports and integrated reports in Türkiye are explained, and the importance of the study and its contribution to the literature are emphasized. In the second section, a literature review of studies conducted on this topic is presented. The third section details the materials and methods employed in the research. It is followed by the presentation of the results and discussion. In the conclusion section, the findings are analyzed, and policy recommendations are proposed.

2. Literature Review

Environmental accounting practices have increasingly become a significant area of research in recent years due to their impact on financial performance. In this section, the existing literature on the subject will be systematically reviewed to demonstrate the contribution of our study to the field.

The literature presents various studies and findings on the relationship between environmental accounting practices and financial performance. Schaltegger and Burritt [19] note that environmental accounting was initially limited to cost-focused studies but gained a strategic dimension in the 2000s with the rise of sustainability reporting. In parallel with this development, a significant increase has been observed in the number of studies examining the impact of environmental accounting disclosures on financial performance.

Among the studies that argue for a positive relationship, Akani and Briggs [1] found that environmental accounting information strengthens the relationship value of accounting data in the Nigerian banking sector. Shakil et al. [20] concluded that the environmental and social performance of banks is positively related to financial performance, but governance performance has no effect on financial performance. Similarly, Attah-Botchwey et al. [21] and Al-Dhaimesh and Zobi [22] found that environmental disclosures have a positive impact on return on assets (ROA). Çetenak et al. [23] and Arslan and Yağcılar [24] also found that environmental disclosures have a positive impact on ROA. These studies support the proposition that environmental disclosure improves financial performance by increasing stakeholder confidence.

However, there are also studies in the literature that do not support these findings. Hanić et al. [17] found that environmental disclosures have no significant relationship with ROA and ROE in Serbian banks. On the other hand, Çizgici Akyüz [18] found that the environmental performance of banks in Türkiye has no direct effect on financial performance and that there is only a positive causality between carbon dioxide emissions and ROA. Sevim [25], Köse and Ak Kuran [26], and Güneysu and Atasel [27] also found no significant relationship between environmental accounting information and financial performance.

An important reason for the inconsistent results in the literature is the different methodological approaches used. While qualitative studies such as that of Deegan [28] emphasize that stakeholder pressure increases environmental disclosure, quantitative studies such as that by Clarkson et al. [29] show that this effect is not reflected in financial performance. These methodological differences make it difficult to compare research findings.

Sectoral studies also show significant differences. Dhar and Chowdhury [30] found that environmental reporting increases profit margins in Bangladeshi banks, while Masud et al. [31] found that there is no standardized approach to environmental disclosure among banks. These findings suggest that sectoral dynamics and institutional context significantly affect the relationship between environmental accounting and financial performance.

This study aims to fill important gaps in the existing literature. First, unlike most studies, it provides sectoral specificity by focusing only on the banking sector. Second, it includes control variables such as loan-to-asset (L/A) ratio and equity-to-asset (E/A) ratio that have not been used in the literature. Finally, by using the seemingly unrelated regression (SUR) method, several financial indicators are analyzed simultaneously, and thus, more reliable results are obtained.

The literature review shows that the relationship between environmental accounting and financial performance is inconsistent. These inconsistencies may be due to differences in measurement methods, sectoral dynamics, or institutional context. This study aims to fill the literature gap in this area by developing a standardized Environmental Accounting Reporting Score (EARS) in the Turkish banking sector and using advanced econometric methods. The results are expected to provide important contributions to both the academic literature and policy makers.

3. Materials and Methods

3.1. Data Set

This study utilized the financial statements of 12 banks listed on Borsa Istanbul (BIST) for the years 2019–2023 as well as the sustainability and integrated reports of these banks. The financial ratios used in the study were calculated based on data from the financial statements available on the Public Disclosure Platform (PDP) [32] of Türkiye.

Table 1. Variables and descriptions.

Variable Name	Variable Symbol	Variable Description
Dependent Variables *
Return on Assets	ROA	Net Profit/Total Assets
Return on Equity	ROE	Net Profit/Total Equity
Earnings Per Share	EPS	Net Profit/Total Number of Shares
Profit Margin	PM	(Net Profit/Revenue) × 100
Independent Variables **
Environmental Accounting Reporting Score	EARS	EARS = 1, If Disclosure Exists EARS = 0, If No Disclosure
Environmental Accounting Reporting Score–Financial	EARSFIN	EARSFIN = 1, If Disclosure Exists EARSFIN = 0, If No Disclosure
Environmental Accounting Reporting Score–Operational	EARSOPR	EARSOPR = 1, If Disclosure Exists EARSOPR = 0, If No Disclosure
Control Variables *
Bank Size	SIZE	Logarithm of Total Assets
Debt Ratio	D/A	Total Liabilities/Total Assets
Loan-to-Asset Ratio	L/A	(Total Loans/Total Assets) × 100
Equity-to-Asset Ratio	ER	(Equity/Average Total Assets) × 100
Non-Interest Expenses-to-Asset Ratio	NIE	(Total Non-Interest Expenses/Average Total Assets) × 100

* Calculated by the authors using data obtained from the Public Disclosure Platform (PDP). ** Calculated by the authors using data obtained from the banks’ sustainability and integrated reports.

shows the variables, their symbols, and descriptions used in the study.

Using financial ratios to evaluate company performance has been a traditional yet powerful tool for decision makers, including business analysts, creditors, investors, and financial managers [33]. In this study, the dependent variables used to measure financial performance are return on assets (ROA), Return on Equity (ROE), earnings per share (EPS), and profit margin (PM).

In this study, control variables were used to clearly reveal the relationship between financial performance and environmental accounting reporting scores [34]. The control variables used in this study are bank size (Size), debt ratio (D/A), loan-to-asset ratio (L/A), equity-to-asset ratio (ER), and non-interest expenses-to-asset ratio (NIE).

The independent variable in the study is the Environmental Accounting Reporting Score (EARS), which reflects the environmental accounting performance of banks. In this study, 17 subcategories were determined to measure the environmental accounting performance of banks, based on the “Sustainability Guide for the Banking Sector” [35] prepared by the Banks Association of Türkiye and previous research [30,31]. These subcategories were grouped into two main categories, operational and financial environmental practices, to examine the differences between them.

Table 2. Categories of environmental accounting reporting information *.

Operational Environmental Practices	Energy Efficiency
	Waste Management and Recycling
	Water Management
	Carbon Footprint Management
	Green Office Practices
	Employee and Customer Awareness
	Paperless Banking
	Digitalization
	Environmental Management Awards
	Environmental and Social Risk Management
Financial Environmental Practices	Green Loans and Financing
	Sustainable Investment Products
	Financing for Environmental and Social Responsibility Projects
	Climate-Compatible Financing
	Sustainable Portfolio Management
	Green Banking Products
	Financing Compliant with International Standards

* Prepared by Masud et al. [31], Dhar and Chowdhury [30], the Banks Association of Türkiye [35], and the authors.

presents the categories of environmental accounting reporting information.

The unweighted reporting index is a measurement method that assigns equal importance to each reporting item and does not prioritize or weight any items [36]. Using the unweighted reporting index, environmental practices in sustainability and integrated reports were scored as “1” (disclosed) or “0” (not disclosed). Thus, the unweighted reporting index was prepared (used), and the EARS variable was measured as shown in Equation (1) [30].

$$EARS=\sum _{i=1}^n{d}_i$$

(1)

Here,

$d_i=1$, if the $i^{th}$ environmental practice is disclosed;

$d_i=0$, if the $i^{th}$ environmental practice is not disclosed;

n = the total number of environmental practices.

In the study, the impact of banks’ environmental accounting disclosures on their financial performance was examined using 12 models divided into 3 groups. The equation system containing 12 models for Group 1 (Model 1, Model 2, Model 3, Model 4), Group 2 (Model 5, Model 6, Model 7, Model 8), and Group 3 (Model 9, Model 10, Model 11, Model 12) is shown in Equation (2).

$$Y_{ij}={\beta }_{0i}+{\beta }_{1i}{X}_{ij}+{\beta }_{2i}SIZE+{\beta }_{3i}D/A+{\beta }_{4i}L/A+{\beta }_{5i}ER+{\beta }_{6i}NIE+\epsilon$$

(2)

where i represents the group and i = 1, 2, 3. Y_ij represents ROA, ROE, EPS and PM, respectively. X_ij represents EARS, EARSOPR, and EARSFIN, respectively, and j = 1, 2, 3, 4.

3.2. Seemingly Unrelated Regression (SUR)

In panel data regression analysis, using the classical regression model when the constant and slope parameters vary across units or time (i.e., are heterogeneous) can lead to biased results. In such cases, models that account for heterogeneity should be used [37]. If the assumptions are satisfied, a single-equation model can be estimated using the ordinary least squares (OLS) method, yielding unbiased and consistent estimators [38]. However, when estimating multiple-equation models, if there is a correlation between their error terms, the OLS method will not provide unbiased and consistent estimates. In this case, the seemingly unrelated regression (SUR) method, also known as Zellner’s method, which accounts for the correlation between error terms, can be used for estimation [39,40].

The general structure of an equation system consisting of K equations and n observations in matrix form is shown in Equation (3).

$$\left[\begin{array}{c}{Y}_1\\ Y_2\\ ⋮\\ Y_K\end{array}\right]=\left[\begin{array}{ccc}{X}_1& 0& \cdots \\ 0& X_2& \dots \\ ⋮& ⋮& \ddots \\ 0& \cdots & X_K\end{array}\right]\left[\begin{array}{c}{\beta }_1\\ {\beta }_2\\ ⋮\\ {\beta }_K\end{array}\right]+\left[\begin{array}{c}{\epsilon }_1\\ {\epsilon }_2\\ ⋮\\ {\epsilon }_K\end{array}\right]$$

(3)

In matrix notation, when expressed as Y = Xβ + ε, Y is the vector of observations of the dependent variables, X is the matrix of observations of the independent variables, β is the parameter vector, and ε is the vector of observations of the error terms [41]. Here, the expected value of the error terms is 0, and they follow a normal distribution.

The variance–covariance matrix of equation i is E[ε_i, ε^’_i] = σ_iiI_n. Assuming a relationship between the error terms of K different equations, E[ε_p, ε^’_q] = σ_pqI_n is the covariance of the error terms of the pth and qth equations. In is the n × n dimensional unit matrix. The variance–covariance matrix φ of the error terms of the K equations is shown in Equation (4) [42].

$$\phi =\left[\begin{array}{ccc}\left[{\sigma }_{11}{I}_{n\times n}\right]& \dots & \left[{\sigma }_{1K}{I}_{n\times n}\right]\\ \left[{\sigma }_{21}{I}_{n\times n}\right]& \dots & \left[{\sigma }_{1K}{I}_{n\times n}\right]\\ ⋮& \ddots & ⋮\\ \left[{\sigma }_{K1}{I}_{n\times n}\right]& \cdots & \left[{\sigma }_{KK}{I}_{n\times n}\right]\end{array}\right]$$

(4)

Since the only connection between the equations is the variance–covariance matrix $\phi$ of the error terms, the model is called a seemingly unrelated regression (SUR) model. The coefficient estimation matrix $\widehat{\beta }$ is given in Equation (5):

$$\widehat{\beta }={\left(X^{\prime }{\phi }^{-1}X\right)}^{-1}{X}^{\prime }{\phi }^{-1}Y$$

(5)

The model coefficients are obtained using the two-stage generalized least squares estimator, also known as Aitken’s two-stage estimator, as shown in Equation (5) [43,44]. Stata 14 program was used to analyze the equation systems.

4. Results and Discussion

In the study, the models where financial performance indicators are treated as dependent variables are shown in Equation (2). Before obtaining estimates using the seemingly unrelated regression (SUR) method, which can be used for the joint estimation of multiple equations, the heterogeneity of the model parameters and the presence of a relationship between the error terms were examined to ensure the unbiasedness and consistency of the estimates. To test the homogeneity of the slope coefficients, the slope homogeneity test proposed by Pesaran and Yamagata [45] was used, and the results are presented in

Table 3. Homogeneity test results.

	Models	Delta Test Stat.	Prob. Value
Group 1	Model 1	−2.305 **	0.021
	Model 2	−2.053 **	0.040
	Model 3	−3.266 ***	0.001
	Model 4	−2. 089 **	0.037
Group 2	Model 5	−2.291 **	0.022
	Model 6	−2.066 **	0.039
	Model 7	−3.254 ***	0.001
	Model 8	−2. 085 **	0.037
Group 3	Model 9	−2.295 **	0.022
	Model 10	−2.103 **	0.035
	Model 11	−3.210 ***	0.001
	Model 12	−2. 051 **	0.040

** < 0.05, and *** < 0.01 indicate the significance level of the coefficients.

.

The null hypothesis in the test developed by Pesaran and Yamagata [45] states that the slope coefficients are homogeneous. In contrast, the alternative hypothesis suggests that the slope coefficients are heterogeneous. According to the findings displayed in Table 3, it can be concluded that the slope coefficients are heterogeneous across all models.

To examine the potential relationship between the error terms of the models, the Breusch–Pagan [46] Lagrange multiplier test was employed. The outcomes of this test are presented in

Table 4. Test results for the relationship between error terms.

		ROA	ROE	EPS
Group 1	ROE	0.889			Chi2 = 132.32 p = 0.000
	EPS	0.032	0.026
	PM	0.882	0.782	0.145
Group 2	ROE	0.888			Chi2 = 132.13 p = 0.000
	EPS	0.034	0.033
	PM	0.883	0.781	0.147
Group 3	ROE	0.889			Chi2 = 132.11 p = 0.000
	EPS	0.033	0.005
	PM	0.882	0.781	0.148

.

According to the results of the Breusch–Pagan [46] Lagrange multiplier test, which examines whether there is a relationship between the error terms of the grouped models, the hypothesis of no relationship between the error terms can be rejected for all three groups. Therefore, the claim that the models are independent of each other was not accepted. For this reason, the use of the SUR method for estimation purposes is appropriate [47].

Table 5. Group 1 SUR estimation results.

		EARS	SIZE	D/A	L/A	ER	NIE
Group 1	ROA	−0.000	0.016 ***	0.016 ***	0.000 ***	0.000	−0.001 ***	R2 = 0.50 p = 0.000
	ROE	−0.009 *	0.176 ***	0.040	0.003 ***	−0.000	−0.013 ***	R2 = 0.40 p = 0.000
	EPS	0.027	1.143 ***	0.291	0.008	−0.004	−0.022	R2 = 0.22 p = 0.009
	PM	0.026	9.262 ***	1.368	0.421 ***	0.008	−0.570 *	R2 = 0.53 p = 0.000

* < 0.1, and *** < 0.01 indicate the significance level of the coefficients.

presents the estimation results obtained using the SUR method for the system of equations in the first group.

According to the results presented in Table 5, the models for the dependent variables ROA, ROE, EPS and PM, the independent variable EARS, and the control variables are generally significant. The model with the highest level of explanation among the models is the model in which PM is the dependent variable.

EARS (0.902) and ER (0.129) do not have a statistically significant effect on ROA. On the other hand, SIZE (0.000), D/A (0.000), and L/A (0.000) have a positive effect on ROA, while NIE (0.005) has a negative and statistically significant effect. These results suggest that banks’ environmental accounting disclosures do not have a direct effect on ROA, while larger banks with higher L/A ratios tend to have higher ROA. It also shows that an increase in non-interest expenses can negatively affect banks’ ROA.

EARS (0.052) and NIE (0.010) have a negative and significant effect on ROE. On the other hand, SIZE (0.000) and L/A (0.000) have a positive and statistically significant effect on ROE, while ER and D/A have insignificant effects. The results suggest that an increase in banks’ environmental accounting disclosures may reduce banks’ ROE to a limited extent, while larger banks and banks with higher L/A ratios tend to have higher ROE. The results also show that an increase in non-interest expenses can negatively affect banks’ ROE.

The variable EARS (0.634) has no statistically significant effect on EPS. SIZE (0.002) has a positive and statistically significant effect on EPS, while other variables have no significant effect on EPS. These results suggest that banks’ environmental accounting disclosures do not have a direct effect on banks’ EPS and that larger banks tend to have higher EPS.

The variables EARS (0.935), ER (0.864), and D/A (0.536) do not have a statistically significant effect on PM. However, the variables SIZE (0.000) and L/A (0.000) have a positive and statistically significant effect on PM. On the other hand, the variable NIE (0.089) has a negative and statistically significant effect on PM. This indicates that an increase in non-interest expenses may have a negative impact on banks’ profit margin. These results suggest that environmental accounting reporting practices do not have a direct impact on banks’ profit margin, while larger banks and banks with higher L/A ratios tend to have higher profit margins.

In general, the EARS variable does not have a statistically significant effect on the dependent variables except ROE. This result shows that the environmental accounting performance of banks does not have a direct impact on the financial performance of banks. The SIZE variable has a positive and statistically significant effect on all dependent variables. This implies that larger banks tend to have higher financial performance. The NIE variable has a negative and statistically significant effect on ROA, ROE, and PM. This suggests that an increase in non-interest expenses may have a negative impact on bank profitability.

Table 6. Group 2 SUR estimation results.

		EARSOPR	SIZE	D/A	L/A	ER	NIE
Group 2	ROA	−0.000	0.016 ***	0.016 ***	0.000 ***	0.000	−0.001 ***	R2 = 0.50 p = 0.000
	ROE	−0.009 *	0.176 ***	0.040	0.003 ***	−0.000	−0.013 ***	R2 = 0.40 p = 0.000
	EPS	0.051	1.118 ***	0.277	0.008	−0.004	−0.024	R2 = 0.22 p = 0.008
	PM	−0.017	9.349 ***	1.396	0.420 ***	0.009	−0.563 *	R2 = 0.53 p = 0.000

* < 0.1, and *** < 0.01 indicate the significance level of the coefficients.

shows the estimation results for the second set of equations using the SUR method.

According to the results presented in Table 6, the models for the dependent variables ROA, ROE, EPS and PM, the independent variable EARSOPR, and the control variables are generally significant. Among the models, the model with the highest level of explanation is the model in which PM is the dependent variable.

EARSOPR (0.790) and ER (0.125) have no significant effect on ROA. The variables SIZE (0.000), D/A (0.000), and L/A (0.000) have a positive and statistically significant effect on ROA. NIE (0.006) has a negative and significant effect on ROA. As a result, EARS seems to have limited direct impact on the financial performance of banks. However, factors such as SIZE and L/A and D/A ratios have a more significant impact on financial performance.

EARSOPR (0.039) and NIE (0.0009) have a negative and statistically significant effect on ROE. The variables SIZE (0.000) and L/A (0.000) have a positive and significant effect on ROE. D/A (0.207) and ER (0.282) have insignificant effects. These results indicate that environmental accounting practices have a limited effect on ROE, but factors such as bank size and L/A ratio have a significant effect on ROE.

The variable EARSOPR (0.496) has no significant effect on EPS. The variable SIZE (0.0002) has a positive and statistically significant effect on EPS. Other variables have no significant effect on EPS. According to these results, operational environmental accounting practices do not have a direct effect on banks’ EPS. It also shows that larger banks tend to have higher EPS.

The variable EARSOPR (0.967) has no statistically significant effect on PM. The variables SIZE (0.000) and L/A (0.000) have a positive and statistically significant effect on PM. On the other hand, NIE (0.092) has a negative and statistically significant effect on PM. These results indicate that operational environmental accounting practices do not have a direct effect on banks’ profit margin. Larger banks with higher L/A ratios tend to have higher profit margins. On the other hand, it shows that an increase in banks’ non-interest expenses can negatively affect their profit margin.

In general, Table 6 shows that the EARSOPR variable does not have a statistically significant effect on the dependent variables except ROE. This suggests that the direct impact of operational environmental accounting practices on banks’ financial performance is limited and that larger banks tend to have higher financial performance. It also suggests that an increase in banks’ non-interest expenses may have a negative impact on banks’ profitability.

Table 7. Group 3 SUR estimation results.

		EARSFIN	SIZE	D/A	L/A	ER	NIE
Group 3	ROA	0.000	0.016 ***	0.016 ***	0.000 ***	0.000	−0.001 ***	R2 = 0.50 p = 0.000
	ROE	−0.028	0.170 ***	0.034	0.004 ***	−0.000	−0.013 ***	R2 = 0.38 p = 0.000
	EPS	−0.044	1.225 ***	0.309	0.007	−0.003	−0.015	R2 = 0.21 p = 0.010
	PM	0.595	9.024 ***	1.368	0.422 ***	0.006	−0.596 *	R2 = 0.53 p = 0.000

* < 0.1, and *** < 0.01 indicate the significance level of the coefficients.

presents the estimation results for the third set of equations using the SUR method.

According to the results presented in Table 7, the models for the dependent variables ROA, ROE, EPS and PM, the independent variable EARSFIN, and the control variables are generally significant. The model with the highest level of explanation among the models is the model in which PM is the dependent variable.

The variables EARSFIN (0.744) and ER (0.141) do not have a statistically significant effect on ROA. The variables SIZE (0.000), D/A (0.000), and L/A (0.000) have a positive and significant effect on ROA. NIE (0.004) has a negative and significant effect on ROA. These results suggest that financial environmental accounting practices have a limited effect on ROA, but factors such as bank size and L/A ratio significantly increase ROA.

EARSFIN (0.156) and ER (0.244) have a negative effect on ROE, but this effect is not significant. The variables SIZE (0.000) and L/A (0.000) have a positive effect on ROE, and NIE (0.010) has a negative and statistically significant effect. These results indicate that environmental accounting practices have a limited effect on ROE, and factors such as bank size and L/A ratio have a significant effect on ROE.

The variable EARSFIN (0.850) has no statistically significant effect on EPS (p-value = 0.850). The variable SIZE (0.001) has a positive and statistically significant effect on EPS. Other variables have no significant effect on EPS. According to these results, financial environmental accounting practices do not have a direct effect on banks’ earnings per share. It shows that larger banks tend to have higher EPS.

The variable EARSFIN (0.650) has no statistically significant effect on PM. The variables SIZE (0.000) and L/A (0.000) have a positive and statistically significant effect on PM. NIE (0.077) has a negative and statistically significant effect on PM. These results indicate that EARSFIN does not play a significant role in explaining profit margin. It indicates that as bank size and the L/A ratio of assets increase, the profit margin also increases, and an increase in non-interest expenses tends to decrease the profit margin.

Table 7 shows that, in general, environmental accounting practices do not have a direct impact on the financial performance of banks, and factors such as bank size and L/A ratio have a more significant impact on financial performance.

5. Conclusions

Environmental accounting disclosures are of increasing importance to both business and society as they focus on key issues such as corporate sustainability, transparency, and accountability. Banks are key financial institutions that support economic growth, ensure financial stability, and contribute to the well-being of society by providing resources to individuals and businesses. Reporting on their environmental impacts enables banks to meet their environmental responsibilities and build stakeholder trust. In addition, managing environmental risks and adapting to sustainable financing models strengthens banks’ long-term financial performance. These disclosures create a competitive advantage in the eyes of environmentally conscious investors and customers, enhance banks’ reputations, and help them meet their social and ethical responsibilities. Therefore, environmental accounting disclosures are an indispensable tool for building a sustainable future in the banking sector.

In this study, the relationship between the environmental accounting disclosures and financial performance ratios of 12 banks listed on Borsa Istanbul (BIST) in Türkiye is analyzed for the years 2019–2023. The ratios used as financial performance indicators are ROA, ROE, EPS, and PM. In this study, control variables are used to clearly show the relationship between financial performance and environmental accounting disclosures. The control variables used in this study are SIZE, D/A, L/A, ER, and NIE.

When analyzing the models in the Group 1, Group 2, and Group 3 equation systems in general, we found that the General Environmental Accounting Reporting Score (EARS) variable has a significant effect only on return on equity. The same is true for the variable Operational Environmental Accounting Reporting Score (EARSOPR). This finding suggests that banks’ environmental accounting performance has no direct effect on financial performance indicators and has a limited effect. This result supports the findings of previous studies [17,30]. In addition, we found that the Environmental Accounting Reporting Score (EARSFIN) variable does not have a direct and statistically significant effect on the financial performance of banks. The results suggest that the impact of operational environmental accounting practices on financial performance is weaker than other factors such as the size and financial structure of banks.

When all systems of equations are analyzed, it is found that SIZE has a positive and statistically significant effect on all dependent variables. This result suggests that larger banks tend to have higher financial performance. In addition, the NIE variable has a negative and statistically significant effect on ROA, ROE, and PM. This suggests that an increase in non-interest expenses may negatively affect banks’ profitability indicators.

Policy Recommendations

Given the conclusion that banks’ environmental accounting disclosures have limited direct impact on financial performance, policy makers should develop guidelines and standards to make these practices more effective and standardized. In particular, standardizing the format and scope of sustainability and integrated reports will make banks’ environmental accounting information verifiable and comparable. The results of the study show that stakeholders need to be made more aware of this issue. Therefore, training programs and awareness campaigns on environmental accounting and sustainability reporting should be organized. In addition, banks should be encouraged to report their environmental performance more transparently, and stakeholders should be given easier access to this information. Regulatory frameworks for sustainable financing projects should be established, and financial incentives should be provided to banks that invest in such projects. Policy makers should establish environmental risk management guidelines and requirements for banks to manage environmental risks (climate change, natural disasters, etc.) more effectively. These policy recommendations aim to increase the impact of banks’ environmental accounting practices on financial performance, promote sustainable financing models, and make the banking sector more environmentally friendly and responsible in general. These steps will contribute to both environmental and financial sustainability.