| Summary: | In addition to becoming a key topic in business, ESG has also emerged as a prominent area of research, particularly regarding the relationship between ESG and financial performance (ESG-FP). Nevertheless, research examining the ESG-FP relationship and sectoral differences in Malaysia, is limited. This article examines the relationship between ESG and financial performance in Malaysia, where ESG initiatives are on the rise but predominantly compliance-driven. This study further examines the different impact of ESG performance on the financial performance of FMCG and non-FMCG firms, as well as the ESG-FP relationship during period of crisis.
A dataset of 83 Malaysian companies from 2021 to 2023, encompassing ESG scores, companies’ data and financial performance indicators such as ROA, ROE, EBIT were collected for quantitative analysis. Quantitative analysis including Pooled regression analysis and predictive margins analysis were conducted using STATA to provide a comprehensive understanding of ESG-FP relationship as well as sectoral and contextual dynamics. Financial performance in this study is measured by ROA and ROE where EBIT is measured in robustness test. The findings indicate that ESG performance does not consistently result in improved ROA or ROE, as total assets or total equity may reduce the effect of increased EBIT. While sectoral dynamics were evidenced by a significant positive correlation between ESG and ROE for FMCG companies, ESG performance was found to be insignificant in stabilizing financial performance during a period of crisis
This paper enhances the literature by emphasizing the complex and context-dependent nature of the ESG-FP relationship in Malaysia. It underscores the necessity for businesses to align their ESG integration and strategies with sectoral characteristics to optimize the returns on their ESG investments. This finding also provides valuable insights for policymakers in customizing ESG policies and public awareness campaigns to promote broader adoption across the nation.
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