Corporate Environmental Social Governance and Financial Performance: A Cross-sector Risk Analysis in Malaysia

Abstract

This study contributes to the existing literature on corporate Environmental Social Governance (ESG) by examining the relationship between ESG performance and firm performance. The scope of ESG practices across Malaysian Public Listed Companies (PLCs) in various risk-level industries (i.e., high, medium, and low) is investigated in this study. The resource-based view (RBV) was applied to a sample of pioneer ESG companies with seven years of observations extracted from Bloomberg's ESG data. The quantitative method employed was panel data, specifically, the seemingly unrelated regression (SUR) model and comparison of different levels of risk sectors (high, medium, and low), with the aim of achieving robust results. Based on trend analysis, the medium-risk sectors and governance mean performance exhibited the best achievement in seven years of observation. Tobin's Q demonstrated that the market value and replacement value of physical assets are more reliable indicators of asset utilisation in the medium-risk sector than the ROA. While all PLCs across all industries receive green efforts, medium-risk sectors, such as housebuilders and developers, telecommunications, and consumer goods, are proactive in offering green products and services that directly impact consumers' daily lives. However, there is development potential and an extraordinary opportunity for both high-risk and low-risk industries. Improved planning and a more favourable business climate would enable all industries to widen their ESG objectives. Simultaneously, it is possible to identify and replicate the best practices in medium-risk ESGs to advance and attract investment in these two sectors. This study adds to the existing body of knowledge about the impact of business accountability and responsibility by examining cross-sector risk in Malaysia, a previously unstudied context.

The moderating role of sector risk in the relationship between ESG and financial performance: Evidence from top companies in Malaysia

“…After a thorough evaluation, the top 100 firms were selected, and a final sample of 30 (90 observations) was obtained. This study classified firms into three risk categories: high -risk, mediumrisk, and low-risk, based on the ESG matrix from S&P Global Ratings [53] also used in Jasni and Yusoff [15]. This sample ensured diversity, with ten high-risk, ten medium-risk, and ten low-risk firms.…”