EXAMINING THE ROLE OF RISK MANAGEMENT IN LINKING SUSTAINABILITY TO FINANCIAL DISTRESS IN BANKS

Abstract

This study investigates the impact of sustainability and risk management on financial distress among banks listed by the Financial Services Authority (OJK) during the 2020–2023 period. Sustainability is represented by Green Loans, while risk management is measured using the Capital Adequacy Ratio (CAR). A quantitative explanatory approach with Structural Equation Modeling (SEM) is used to examine both direct and indirect relationships between variables. The findings reveal that Green Loans do not have a significant direct effect on financial distress but significantly influence risk management. Additionally, risk management does not directly affect financial distress but serves as an intervening factor that enhances the influence of sustainability on financial distress. The practical implication highlights the need to strengthen the integration of sustainability within risk management frameworks to support financial resilience in the banking sector. This study offers both theoretical and practical insights for enhancing banking risk management and informs policy recommendations for regulators, financial institutions, and future researchers.