Environmental, social, and governance (esg) and financial performance: The mediating roles of green research and development (r&d) and green innovation in emerging Asean countries

Abstract

While Environmental, Social, and Governance (ESG) practices are widely expected to improve corporate financial performance, empirical evidence from emerging markets remains mixed, calling for an investigation of the underlying mechanisms behind this relationship. This research is conducted on listed companies in five emerging ASEAN countries: Malaysia, Indonesia, Thailand, the Philippines, and Vietnam. Drawing on Stakeholder Theory and the Natural-Resource-Based View (NRBV), this research investigates the direct and indirect impacts of disaggregated ESG scores on financial performance, measured by Return on Assets (ROA), with Green R&D and Green Innovation serving as mediators. The study utilizes secondary data obtained from the Refinitiv Database. The sample includes data from 163 companies across the five aforementioned emerging ASEAN countries from 2020 to 2024. This study uses panel data regression as its analytical approach, specifically, Feasible Generalized Least Squares (FGLS) assesses the direct impact of ESG pillars on ROA, while Generalized Structural Equation Modeling (GSEM) examines the mediating roles of Green Innovation and Green R&D. The findings indicate that, in terms of direct impact, the environmental and governance pillars positively influence financial performance, whereas the social pillar shows no effect. Concerning indirect impact, all three ESG pillars encourage companies to adopt Green R&D and Green Innovation. Nonetheless, only Green Innovation acts as a mediator in this relationship, while Green R&D does not