In this paper, we study the relationship between banks’ business models and the Environmental, Social and Governance (ESG) performance. While previous studies mainly examine how business models influence financial variables, little is known about the relationship between ESG performance and banks’ financial configurations.

We use a threshold regression model (Hansen, 1999) to identify optimal threshold levels in the business models of a sample of 80 European listed banks from 2006 - 2021. We find that higher ESG scores are positively related to stronger capital buffers and greater reliance on deposit-based funding. Moreover, ESG performance is linked to more traditional and stable income structures, with lower dependence on high-risk, market-based activities. These findings suggest that ESG integration contributes to financial resilience and provides policy insights for incorporating sustainability factors into prudential regulation and risk assessment frameworks.