The Effect of ESG Scores on Financial Performance and Stock Volatility in Emerging Markets: Empirical Evidence from ASEAN-5

This study examines the relationship between Environmental, Social, and Governance (ESG) performance and financial Performance, as well as stock return volatility, among publicly listed firms in the ASEAN-5 countries (Indonesia, Malaysia, Thailand, the Philippines, and Vietnam) from 2016 to 2023. Employing a panel data approach and fixed effects regression models, the study analyzes whether ESG serves as a strategic determinant in enhancing firm value and mitigating market risk in emerging markets. The findings reveal that ESG scores have a significant positive effect on financial Performance, measured by Return on Assets (ROA), and a significant adverse impact on stock return volatility. These results suggest that companies with stronger ESG profiles tend to exhibit better profitability and lower stock price fluctuations. Among the control variables, firm size and leverage are consistently significant predictors across models. This research contributes to the growing body of literature on sustainable finance by providing robust empirical evidence from emerging economies, where ESG adoption is still in its early stages of development. The study also offers practical insights for investors, policymakers, and corporate managers on how to incorporate ESG considerations into their strategic decision-making processes.