["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nThis study examines how environmental, social, and governance (ESG) performance shapes the relationship between bank competition and financial stability in emerging markets. Using a panel of banks from 15 Middle East and North Africa (MENA) countries over the period 2007–2023, we investigate whether ESG engagement functions as a strategic mechanism through which competitive pressures influence financial resilience. Employing generalized least squares (GLS) and generalized method of moments (GMM) estimators, we document two nonlinear relationships. First, we identify a U‐shaped association between bank competition and ESG performance: Moderate competition encourages stronger environmental and governance practices, whereas excessive competition constrains resources and managerial attention devoted to sustainability initiatives. Second, we find an inverted U‐shaped relationship between market concentration and bank stability, indicating that moderate market power enhances stability, whereas excessive concentration promotes risk‐taking and weakens systemic resilience. Importantly, ESG performance operates as a mediating channel linking competition and stability. Banks with stronger ESG engagement—particularly in less competitive environments—exhibit higher financial stability, consistent with stakeholder and resource‐based perspectives. We further show that ownership structure, governance quality, and institutional conditions shape these dynamics. State ownership tends to weaken market discipline, whereas foreign ownership strengthens governance oversight. Overall, our findings highlight ESG as a strategic capability that enables banks to convert competitive pressure into financial resilience, offering important implications for competition policy, sustainability regulation, and financial stability in emerging banking systems.\n"]