The moderating role of economic development in the esg-financial performance relationship: Insights from listed asian firms

Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) practices and corporate financial performance (CFP), measured by return on equity (ROE), among listed firms in 20 Asian countries from 2014 to 2023. Utilizing a Fixed Effects Model (FEM), the research explores the moderating effects of economic development levels and emission intensity across industries. The findings reveal a positive and significant relationship between ESG practices and financial performance, emphasizing the distinct roles of the Environmental, Social, and Governance pillars. Moderate-emission industries demonstrate the strongest ESG-ROE relationship, while high-emission industries face implementation challenges due to cost barriers. Developed economies exhibit consistent ESG impacts on financial performance, driven by robust legal frameworks and advanced technological infrastructures. In contrast, developing economies leverage ESG practices as strategic tools for attracting investment and enhancing global competitiveness, despite infrastructural limitations. The study confirms the moderating roles of emission intensity and economic development in the ESG-CFP nexus and provides actionable recommendations for policymakers and businesses. These include tailored ESG strategies, enhanced governance structures, and sector-specific investments in sustainability. This research contributes to the growing body of ESG literature, highlighting its strategic value in promoting sustainable development and financial growth within diverse economic contexts