Email this article The Role of ESG Factors in Shaping Financial Performance: Insights from Malaysia’s Industrial Landscape
Abstract
Method: This research uses a quantitative approach with a purposive sampling technique, and 23 companies were obtained as samples. Data was obtained from Refinitiv Eikon and financial statements, and SPSS 30.0 was used. To analyze the data. Companies that did not have complete ESG data from 2021-2023 were excluded from the analysis.
Results: The results of this study show that environmental performance has a significant negative effect on financial performance, social performance has no significant direct effect on financial performance, while governance has a significant positive impact on financial performance.
Implications: This study provides strategic recommendations for companies, investors, and regulators in managing sustainability issues to support sustainable long-term value creation.
Novelty: This study focuses on energy and basic materials companies listed on Bursa Malaysia, an emerging market that is still relatively rare in the ESG literature. Meanwhile, most of the previous studies focused on developed countries that have stricter ESG regulations and more mature sustainability implementation.
Keywords
Full Text:
PDFReferences
Achim, M.-V., Borlea, S.-N., & Mare, C. (2016). Corporate governance and business performance: Evidence for the Romanian economy. Journal of Business Economics and Management, 17(3), Article 3. https://doi.org/10.3846/16111699.2013.834841
Afani, Moh., Atika, B. F., Cahya, R. P. A., Setyaningsih, N. D., & Murdiansyah, I. (2024). SPECIAL RELATIONSHIP TRANSACTIONS AGAINST TAX AGGRESSIVENESS IN PROPERTY COMPANIES WITH INSTITUTIONAL OWNERSHIP AS A MODERATING VARIABLE. Jurnal Ilmiah Bisnis Dan Ekonomi Asia, 18(2), 148–159. https://doi.org/10.32815/jibeka.v18i2.1872
Alsayegh, M. F., Abdul Rahman, R., & Homayoun, S. (2020). Corporate Economic, Environmental, and Social Sustainability Performance Transformation through ESG Disclosure. Sustainability, 12(9), Article 9. https://doi.org/10.3390/su12093910
Anggun, L. (2022). Pandemi Covid-19 Dan Implementasi Corporate Governance. JURNAL USM LAW REVIEW, 5(1), 80. https://doi.org/10.26623/julr.v5i1.3989
Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: Evidence from India. Corporate Governance, 16(2), 420–436. https://doi.org/10.1108/CG-01-2016-0018
Barnett, M. L., & Salomon, R. M. (2006a). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), 1101–1122. https://doi.org/10.1002/smj.557
Barnett, M. L., & Salomon, R. M. (2006b). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), 1101–1122. https://doi.org/10.1002/smj.557
Behl, A., Kumari, P. S. R., Makhija, H., & Sharma, D. (2022). Exploring the relationship of ESG score and firm value using cross-lagged panel analyses: Case of the Indian energy sector. Annals of Operations Research, 313(1), 231–256. https://doi.org/10.1007/s10479-021-04189-8
Branco, M. C., & Rodrigues, L. L. (2006). Corporate Social Responsibility and Resource-Based Perspectives. Journal of Business Ethics, 69(2), 111–132. https://doi.org/10.1007/s10551-006-9071-z
Bridges, S., & Harrison, J. K. (2003). Employee Perceptions Of Stakeholder Focus And Commitment To The Organization. Journal of Managerial Issues, 15(4), 498–509.
Buallay, A., Fadel, S. M., Al-Ajmi, J. Y., & Saudagaran, S. (2020). Sustainability reporting and performance of MENA banks: Is there a trade-off? Measuring Business Excellence, 24(2), 197–221. https://doi.org/10.1108/MBE-09-2018-0078
Cordeiro, J. J., & Sarkis, J. (1997). Environmental proactivism and firm performance: Evidence from security analyst earnings forecasts. Business Strategy and the Environment, 6(2), 104–114. https://doi.org/10.1002/(SICI)1099-0836(199705)6:2<104::AID-BSE102>3.0.CO;2-T
Dahan, Y., Lerner, H., & Milman-Sivan, F. (2023). Shared Responsibility and Labor Rights in Global Supply Chains. Journal of Business Ethics, 182(4), 1025–1040. https://doi.org/10.1007/s10551-021-04988-w
Dao, T. T. B., & Phan, M. C. (2023). Stakeholder theory, risk-taking and firm performance. Corporate Governance: The International Journal of Business in Society, 23(7), 1623–1647. https://doi.org/10.1108/CG-09-2022-0366
de Villiers, C., & Dimes, R. (2021). Determinants, mechanisms and consequences of corporate governance reporting: A research framework. Journal of Management and Governance, 25(1), 7–26. https://doi.org/10.1007/s10997-020-09530-0
Deng, X., Li, Z., & Gibson, J. (2016). A review on trade-off analysis of ecosystem services for sustainable land-use management. Journal of Geographical Sciences, 26(7), 953–968. https://doi.org/10.1007/s11442-016-1309-9
Earnhart, D. (2018). The Effect of Corporate Environmental Performance on Corporate Financial Performance. Annual Review of Resource Economics, 10(Volume 10, 2018), 425–444. https://doi.org/10.1146/annurev-resource-100517-023007
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The Impact of Corporate Sustainability on Organizational Processes and Performance. Management Science, 60(11), 2835–2857. https://doi.org/10.1287/mnsc.2014.1984
Elnahass, M., Salama, A., & Trinh, V. Q. (2022). Firm valuations and board compensation: Evidence from alternative banking models. Global Finance Journal, 51, 100553. https://doi.org/10.1016/j.gfj.2020.100553
Elsayed, K., & Paton, D. (2005). The impact of environmental performance on firm performance: Static and dynamic panel data evidence. Structural Change and Economic Dynamics, 16(3), 395–412. https://doi.org/10.1016/j.strueco.2004.04.004
Firmansyah, A., Kharisma, A. N., & Amalia, R. (2023). Apakah Risiko ESG Berkaitan dengan Risiko Perusahaan? ABIS: Accounting and Business Information Systems Journal, 11(4). https://doi.org/10.22146/abis.v11i4.87641
Firmansyah, I., & Tri Setyorini, C. (2023). GLOBAL TRENDS AND PROSPECTS FOR ENVIRONMENT, SOCIAL, AND GOVERNANCE DISCLOSURE: A BIBLIOMETRIC STUDY. Jurnal Akuntansi, 17(2), 176–198. https://doi.org/10.25170/jak.v17i2.4405
Gaio, C., Henriques, R., Gaio, C., & Henriques, R. (2020). Social Responsibility and Financial Performance: The Case of STOXX Europe Index. IntechOpen. https://doi.org/10.5772/intechopen.93573
Goswami, S., & Bhaduri, G. (2023). Communicating Moral Responsibility: Stakeholder Capitalism, Types, and Perceptions. Sustainability, 15(5), Article 5. https://doi.org/10.3390/su15054386
Habib, A. M., & Mourad, N. (2024). The Influence of Environmental, Social, and Governance (ESG) Practices on US Firms’ Performance: Evidence from the Coronavirus Crisis. Journal of the Knowledge Economy, 15(1), 2549–2570. https://doi.org/10.1007/s13132-023-01278-w
Hart, S. L. (1995a). A Natural-Resource-Based View of the Firm. The Academy of Management Review, 20(4), 986–1014. https://doi.org/10.2307/258963
Hart, S. L. (1995b). A Natural-Resource-Based View of the Firm. The Academy of Management Review, 20(4), 986–1014. https://doi.org/10.2307/258963
Hassel, L., Nilsson, H., & Nyquist, S. (2005). The value relevance of environmental performance. European Accounting Review, 14(1), 41–61. https://doi.org/10.1080/0963818042000279722
Huo, X., Lin, H., Meng, Y., & Woods, P. (2021). Institutional investors and cost of capital: The moderating effect of ownership structure. PLOS ONE, 16(4), e0249963. https://doi.org/10.1371/journal.pone.0249963
Husada, E. V., & Handayani, S. (2021). PENGARUH PENGUNGKAPAN ESG TERHADAP KINERJA KEUANGAN PERUSAHAAN (STUDI EMPIRIS PADA PERUSAHAAN SEKTOR KEUANGAN YANG TERDAFTAR DI BEI PERIODE 2017-2019). Jurnal Bina Akuntansi, 8(2), Article 2. https://doi.org/10.52859/jba.v8i2.173
Iraldo, F., Testa, F., Melis, M., & Frey, M. (2011). A Literature Review on the Links between Environmental Regulation and Competitiveness. Environmental Policy and Governance, 21(3), 210–222. https://doi.org/10.1002/eet.568
Jain, A., Jain, P. K., & Rezaee, Z. (2016). Value-Relevance of Corporate Social Responsibility: Evidence from Short Selling. Journal of Management Accounting Research, 28(2), 29–52. https://doi.org/10.2308/jmar-51439
Jayadin. (2011). Analisis pengaruh makroekonomi, ihsg dan harga minyak dunia terhadap return saham energi dan pertambangan energi. https://www.semanticscholar.org/paper/Analisis-pengaruh-makroekonomi%2C-ihsg-dan-harga-dan-Jayadin/2ac9152bcadbf870211afb7459222cdbd76fc070
Judijanto, L., Yusuf, R., & Abdillah, R. (2023). Pengaruh Faktor Lingkungan terhadap Eksplorasi Sumber Daya Alam dan Perubahan Iklim. Jurnal Geosains West Science, 1(03), 134–142. https://doi.org/10.58812/jgws.v1i03.719
Junius, D., Adisurjo, A., Rijanto, Y. A., & Adelina, Y. E. (2020). THE IMPACT OF ESG PERFORMANCE TO FIRM PERFORMANCE AND MARKET VALUE. Jurnal Aplikasi Akuntansi, 5(1), 21–41. https://doi.org/10.29303/jaa.v5i1.84
Kalia, D., & Aggarwal, D. (2023). Examining impact of ESG score on financial performance of healthcare companies. Journal of Global Responsibility, 14(1), 155–176. https://doi.org/10.1108/JGR-05-2022-0045
Khandelwal, V., Sharma, P., & Chotia, V. (2023). ESG Disclosure and Firm Performance: An Asset-Pricing Approach. Risks, 11(6), Article 6. https://doi.org/10.3390/risks11060112
Kim, S., & Li, Z. (Frank). (2021). Understanding the Impact of ESG Practices in Corporate Finance. Sustainability, 13(7), Article 7. https://doi.org/10.3390/su13073746
Koeswayo, P. S., Haryanto, H., & Handoyo, S. (2024a). The impact of corporate governance, internal control and corporate reputation on employee engagement: A moderating role of leadership style. Cogent Business & Management. https://www.tandfonline.com/doi/abs/10.1080/23311975.2023.2296698
Koeswayo, P. S., Haryanto, H., & Handoyo, S. (2024b). The impact of corporate governance, internal control and corporate reputation on employee engagement: A moderating role of leadership style. Cogent Business & Management, 11(1), 2296698. https://doi.org/10.1080/23311975.2023.2296698
Kong, Y., Antwi-Adjei, A., & Bawuah, J. (2020). A systematic review of the business case for corporate social responsibility and firm performance. Corporate Social Responsibility and Environmental Management, 27(2), 444–454. https://doi.org/10.1002/csr.1838
Kurniawan, I., & Rokhim, R. (2023). Is ESG Companies’ Performance Influenced by Ownership Structure? Evidence in ASEAN. Interdisciplinary Social Studies, 2(9), 2397–2413. https://doi.org/10.55324/iss.v2i9.485
Licandro, O., Burguete, J. L. V., Ortigueira-Sánchez, L. C., & Correa, P. (2024a). Corporate Social Responsibility and Financial Performance: A Relationship Mediated by Stakeholder Satisfaction. Administrative Sciences, 14(1), Article 1. https://doi.org/10.3390/admsci14010015
Licandro, O., Burguete, J. L. V., Ortigueira-Sánchez, L. C., & Correa, P. (2024b). Corporate Social Responsibility and Financial Performance: A Relationship Mediated by Stakeholder Satisfaction. Administrative Sciences, 14(1), Article 1. https://doi.org/10.3390/admsci14010015
Liu, C., & Wu, S. S. (2023). Green finance, sustainability disclosure and economic implications. Fulbright Review of Economics and Policy, 3(1), 1–24. https://doi.org/10.1108/FREP-03-2022-0021
Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality Between Corporate Social Performance and Financial Performance: Evidence from Canadian Firms. Journal of Business Ethics, 89(3), 409–422. https://doi.org/10.1007/s10551-008-0007-7
Matozza, F., Biscotti, A. M., & Mafrolla, E. (2019). Financial reputation repair through environmental performance: A study of restatements in polluting industries. Sustainability Accounting, Management and Policy Journal, 10(5), 798–821. https://doi.org/10.1108/SAMPJ-05-2018-0134
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21(5), 603–609. https://doi.org/10.1002/(SICI)1097-0266(200005)21:5<603::AID-SMJ101>3.0.CO;2-3
Minoja, M. (2012). Stakeholder Management Theory, Firm Strategy, and Ambidexterity. Journal of Business Ethics, 109(1), 67–82. https://doi.org/10.1007/s10551-012-1380-9
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2, 100015. https://doi.org/10.1016/j.cesys.2021.100015
Muslih, M., & Rahadi, D. R. (2019). TATA KELOLA BERKELANJUTAN BAGI BUMN BIDANG KEUANGAN NON PUBLIK. FIRM Journal of Management Studies, 4(2), 200. https://doi.org/10.33021/firm.v4i2.778
Narula, R., Rao, P., & Rao, A. A. (2023). Impact of ESG on firm value: A conceptual review of the literature. Journal of Social and Economic Development, 25(1), 162–179. https://doi.org/10.1007/s40847-023-00267-8
Naseer, M. M., Hunjra, A. I., Mattoussi, F., & Amin, M. N. (2023). Unlocking the effect of corporate environmental practices in driving firms’ financial performance. Environmental Economics and Policy Studies. https://doi.org/10.1007/s10018-023-00385-x
Park, S. R., & Jang, J. Y. (2021). The Impact of ESG Management on Investment Decision: Institutional Investors’ Perceptions of Country-Specific ESG Criteria. International Journal of Financial Studies, 9(3), Article 3. https://doi.org/10.3390/ijfs9030048
Pedrini, M., & Ferri, L. M. (2018). Stakeholder management: A systematic literature review. Corporate Governance: The International Journal of Business in Society, 19(1), 44–59. https://doi.org/10.1108/CG-08-2017-0172
Pineiro-Chousa, J., Vizcaíno-González, M., López-Cabarcos, M. Á., & Romero-Castro, N. (2017). Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach. Sustainability, 9(3), Article 3. https://doi.org/10.3390/su9030376
Puriwat, W., & Tripopsakul, S. (2023). Sustainability Matters: Unravelling the Power of ESG in Fostering Brand Love and Loyalty across Generations and Product Involvements. Sustainability, 15(15), Article 15. https://doi.org/10.3390/su151511578
Putriningtyas, I., Widiastuti, N. P. E., & Sjam, J. M. E. (2024). Environmental, Social, and Governance Disclosure as Pathway to Business Sustainability on the Mining Companies in Indonesia and America. Jurnal Aplikasi Manajemen, 22(1), Article 1. https://doi.org/10.21776/ub.jam.2024.022.01.09
Ramanathan, R. (2018). Understanding Complexity: The Curvilinear Relationship Between Environmental Performance and Firm Performance. Journal of Business Ethics, 149(2), 383–393. https://doi.org/10.1007/s10551-016-3088-8
Ratnasingam, J., Ab Latib, H., Choon Liat, L., Jegatheswaran, N., Othman, K., & Amir, Mohd. A. (2023). Environmental, social, and governance adoption in the Malaysian wood products and furniture industries: Awareness, adoption, and challenges. BioResources, 18(1), 1436–1453. https://doi.org/10.15376/biores.18.1.1436-1453
Razak, N. A., Marmaya, N. H., Othman, M. Z., Osman, I., Kassim, S., Maskuri, F. A., & Mat Tahir, N. K. (2023). Capabilities and Reputation Risks Towards Firm Performance. Journal of Risk and Financial Management, 16(2), Article 2. https://doi.org/10.3390/jrfm16020125
Ruf, B. M., Muralidhar, K., Brown, R. M., Janney, J. J., & Paul, K. (2001). An Empirical Investigation of the Relationship Between Change in Corporate Social Performance and Financial Performance: A Stakeholder Theory Perspective. Journal of Business Ethics, 32(2), 143–156. https://doi.org/10.1023/A:1010786912118
Ryszawska, B. (2016). Sustainability transition needs sustainable finance. Copernican Journal of Finance & Accounting, 5(1), Article 1. https://doi.org/10.12775/CJFA.2016.011
Sen, S., & Bhattacharya, C. B. (2001). Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility. Journal of Marketing Research, 38(2), 225–243. https://doi.org/10.1509/jmkr.38.2.225.18838
Shakil, M. H., Mahmood, N., Tasnia, M., & Munim, Z. H. (2019). Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks. Management of Environmental Quality: An International Journal, 30(6), 1331–1344. https://doi.org/10.1108/MEQ-08-2018-0155
Sitompul, H. F., & Muslih, M. (2020, September 30). PENGARUH TATA KELOLA PERUSAHAAN, REMUNERASI DIREKSI, DAN UKURAN PERUSAHAAN TERHADAP KINERJA PERUSAHAAN DIMODERASI OLEH KOMITE AUDIT PADA BUMN BIDANG KEUANGAN NON PUBLIK. https://www.semanticscholar.org/paper/PENGARUH-TATA-KELOLA-PERUSAHAAN%2C-REMUNERASI-DAN-NON-Sitompul-Muslih/78e90d0b15595560267571d5e94501d4af4ce8ba
Tan, K., Siddik, A. B., Sobhani, F. A., Hamayun, M., & Masukujjaman, M. (2022). Do Environmental Strategy and Awareness Improve Firms’ Environmental and Financial Performance? The Role of Competitive Advantage. Sustainability, 14(17), Article 17. https://doi.org/10.3390/su141710600
Tarmuji, I., Maelah, R., & Tarmuji, N. H. (2016). The Impact of Environmental, Social and Governance Practices (ESG) on Economic Performance: Evidence from ESG Score. International Journal of Trade, Economics and Finance, 7(3), 67–74. https://doi.org/10.18178/ijtef.2016.7.3.501
Ting, I. W. K., Azizan, N. A., Bhaskaran, R. K., & Sukumaran, S. K. (2020). Corporate Social Performance and Firm Performance: Comparative Study among Developed and Emerging Market Firms. Sustainability, 12(1), Article 1. https://doi.org/10.3390/su12010026
Valentinov, V. (2023). Sustainability and stakeholder theory: A processual perspective. Kybernetes, 52(13), 61–77. https://doi.org/10.1108/K-05-2023-0819
Vasileiou, E., Georgantzis, N., Attanasi, G., & Llerena, P. (2022). Green innovation and financial performance: A study on Italian firms. Research Policy, 51(6), 104530. https://doi.org/10.1016/j.respol.2022.104530
Velte, P. (2023). The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research. Management Review Quarterly, 73(1), 353–411. https://doi.org/10.1007/s11301-021-00244-7
Ventouri, A., Chortareas, G., & Kou, F. (2023). Firm Pollution and Reputational Risk: Where Do We Stand? In S. Carbó-Valverde & P. J. Cuadros-Solas (Eds.), New Challenges for the Banking Industry: Searching for Balance Between Corporate Governance, Sustainability and Innovation (pp. 119–143). Springer Nature Switzerland. https://doi.org/10.1007/978-3-031-32931-9_6
Walker, K., & Wan, F. (2012). The Harm of Symbolic Actions and Green-Washing: Corporate Actions and Communications on Environmental Performance and Their Financial Implications. Journal of Business Ethics, 109(2), 227–242. https://doi.org/10.1007/s10551-011-1122-4
Ye, J., & Dela, E. (2023a). The Effect of Green Investment and Green Financing on Sustainable Business Performance of Foreign Chemical Industries Operating in Indonesia: The Mediating Role of Corporate Social Responsibility. Sustainability, 15(14), Article 14. https://doi.org/10.3390/su151411218
Ye, J., & Dela, E. (2023b). The Effect of Green Investment and Green Financing on Sustainable Business Performance of Foreign Chemical Industries Operating in Indonesia: The Mediating Role of Corporate Social Responsibility. Sustainability, 15(14), Article 14. https://doi.org/10.3390/su151411218
Zaiane, S., & Ellouze, D. (2023). Corporate social responsibility and firm financial performance: The moderating effects of size and industry sensitivity. Journal of Management and Governance, 27(4), 1147–1187. https://doi.org/10.1007/s10997-022-09636-7
DOI: https://doi.org/10.18860/em.v16i2.31252
Refbacks
- There are currently no refbacks.
Editorial Office:
Megawati Soekarnoputri Building
Accounting Department, Faculty of Economics
Jln. Gajayana 50 Telp (0341) 558881
E-mail: elmuhasaba@uin-malang.ac.id
Universitas Islam Negeri Maulana Malik Ibrahim Malang
E-ISSN 2442-8922
P-ISSN 2086-1249
This work is licensed under a CC BY SA 4.0 International License