Abstract: This article analyzes how country sustainability determines the effects of environmental, social and governance (ESG) scores on bank profitability in developing and developed economies. Using a sample of 159 banks from 42 countries during the period 2018-2023 (835 observations), we find that, generally, better ESG scores have negative effects on profitability in developing countries with low or moderate sustainability levels. As country sustainability increases, this negative effect is reduced and ends up not being significant. Moreover, if the country's sustainability reaches a high level, the ESG'profitability relationship is reversed and superior ESG ratings lead to higher financial returns. In contrast, for developed economies, the effects of the country's sustainability on the ESG'profitability relationship are generally less beneficial than in developing economies.
