Green Credit, Carbon Emission Disclosure, and Bank Profitability: The Mediating Role of Non-Performing Loans

Abstract

This study investigates the effects of green credit and carbon emission disclosure on bank profitability, measured by Return on Assets (ROA), while examining the mediating role of Non-Performing Loans (NPLs) in Indonesian conventional commercial banks listed on the Indonesia Stock Exchange during the 2021–2025 period. A quantitative causal research design was employed using secondary data collected from annual reports and sustainability reports. The sample consisted of 25 commercial banks (125 firm-year observations) selected through purposive sampling. Panel data regression analysis was conducted using EViews. The findings indicate that both green credit and carbon emission disclosure have positive and significant effects on profitability, whereas NPL has a significant negative effect on profitability. Green credit does not significantly affect NPL; however, the mediation analysis indicates that NPL mediates the relationship between green credit and profitability. These findings suggest that sustainable financing practices, supported by transparent environmental disclosure and effective credit risk management, contribute to improving bank financial performance. This study contributes to the sustainable finance literature by providing empirical evidence on the interaction between green credit, carbon emission disclosure, and credit risk in the Indonesian banking sector, while offering practical insights for bank management and financial regulators in strengthening sustainable banking policies.