Banking on ESG: How ownership influences financial outcomes in 5-ASEAN countries

Abstract

This study investigates the effect of Environmental, Social, and Governance (ESG) scores on bank performance in five Association of Southeast Asian Nations (ASEAN) countries: Indonesia, Malaysia, Singapore, Thailand, and the Philippines. This study aims to examine the effect of ESG scores on bank financial performance and investigate whether the influence of bank ownership can strengthen both. This study uses a sample of 26 banks in 5-ASEAN countries during 2016–2021. This amount is the result of data sorting conducted on 86 banks by adjusting to the research sample criteria. Using multiple linear regression analysis, this study shows that ESG scores have a significant positive effect on bank financial performance as measured by Return on Assets (ROA), Return on Equity (ROE), and Price to Book Value (PBV). Furthermore, this study found that the positive impact of ESG scores on bank performance is stronger for state-owned banks compared to private banks. However, bank ownership does not affect the relationship between ESG scores and ROA. These findings suggest that law enforcement by the government through regulators plays an important role in encouraging banks to view ESG as a driving value to improve their performance.