ESG Integration and Financial Performance: Evidence from Malaysia’s Leading Companies

Abstract

This study examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the leading publicly listed companies in Malaysia. Using balanced panel data from Bloomberg spanning 2015-2022, the study employs multiple regression analysis (MRA) and the generalized method of moments (GMM) to explore these relationships. The findings reveal a significant positive effect of the overall ESG score on ROA, suggesting that comprehensive ESG practices can enhance financial performance. However, individual environmental (E) and social (S) scores negatively impact ROA at a 10% significance level, indicating potential short-term costs associated with these initiatives. Corporate governance (G) scores, total assets (TA), and total debt to total assets (TDTA) ratios demonstrate a significant adverse effect on ROA. The inclusion of the global reporting initiative (GRI) standard as a control variable also adds robustness to the analysis, highlighting the role of standardized sustainability reporting in evaluating corporate performance. These insights underscore the complex interplay between ESG and companies’ financial performance in Malaysia, emphasizing the importance of considering both the benefits and potential short-term costs associated with ESG initiatives. The findings of this study are crucial for policymakers, corporate managers, and investors, offering guidance on aligning sustainability goals with financial objectives to ensure long-term value creation and risk mitigation. This research contributes to the growing body of knowledge on ESG practices in emerging markets, highlighting the critical role of sustainability in today’s global business environment.