THE IMPACT OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) ON BANKING FINANCIAL PERFORMANCE IN ASEAN

Abstract

This study examines the effect of ESG performance on financial performance in banking institutions across five ASEAN countries (Indonesia, Malaysia, Singapore, Thailand, and the Philippines) during the 2021–2024 period. The study is motivated by the increasing importance of ESG practices in the banking sector and the need to understand how ESG disclosure influences financial outcomes in emerging market contexts, where stakeholder expectations and regulatory environments are evolving rapidly. The sample consists of 46 banks with 180 firm-year observations selected using purposive sampling. Panel data regression with the Random Effect Model was employed to test the proposed hypothesis. The results indicate that ESG performance has a positive and significant effect on financial performance, suggesting that banks with higher ESG disclosure levels tend to achieve better profitability. The model with control variables (firm size, Big Four auditors, and non-performing loans) explains approximately 14.01% of the variation in financial performance. The negative relationship between non-performing loans and financial performance underscores the importance of effective credit risk management. These findings suggest that proactive ESG disclosure enhances stakeholder trust and contributes to improved financial performance in ASEAN banking institutions, providing valuable insights for bank management, regulators, and investors in assessing the role of ESG practices in financial outcomes.