Impact of environmental social governance on financial performance: a study of Southeast Asian listed companies

Abstract

This study investigates the impact of Environmental, Social, and Governance (ESG) score on the financial performance of listed companies in the Southeast Asia. The study contributes to the existing literature in providing an empirical evidence for a regional analysis in developing countries, particularly in Southeast Asia and extending the existing models by incorporating macroeconomic and COVID-19 variables. The study estimates the impact of ESG score on financial performance using the Fixed Effect Model from the panel data comprising 225 listed companies in the six countries in the Southeast Asia including Singapore, Malaysia, Thailand, Indonesia, Vietnam, and the Philippines in three years from 2020 to 2022. The statistics implies the ESG practices in Southeast Asia still insufficient and significant variations among enterprises. A one-year lagged ESG variable has a significantly positive impact on financial performance. The COVID-19 infection rate has a significant negative impact on the return on asset (ROA); meanwhile, the ROA experiences a slight increase with a rise in GDP growth. The results also enhance our understanding of ESG investments and underscores their importance in shaping investment choices, especially in rapidly developing Southeast Asian economies, where prioritizing ESG factors is crucial for sustainable development.