Do Boards Moderate the Relationship between Sustainability and Financial Performance in Asia-Pacific Emerging Markets?

Karisma Azmi  Muzakki; Irwan  Trinugroho; Fadli  Septianto; Nimas Melenia Mutiara Akbary

doi:10.15408/etk.v25i2.50099

Authors

Karisma Azmi Muzakki Faculty of Economics and Business, Universitas Sebelas Maret
Irwan Trinugroho Faculty of Economics and Business, Universitas Sebelas Maret
Fadli Septianto Faculty of Economics and Business, Universitas Sebelas Maret
Nimas Melenia Mutiara Akbary Faculty of Economics and Business, Universitas Sebelas Maret

DOI:

https://doi.org/10.15408/etk.v25i2.50099

Keywords:

environmentally sensitive industries, corporate governance, board size, board independence, board gender

Abstract

Research Originality: This study offers novel empirical evidence on the relationship between environmental, social, and governance (ESG) performance and financial performance in an underexplored sector of environmentally sensitive industries across Asia-Pacific emerging markets.

Research Objectives: This study aims to examine the direct impact of ESG performance on firm profitability and to investigate whether board characteristics moderate this relationship among environmentally sensitive industry firms in 10 Asia-Pacific emerging market countries.

Research Method: An unbalanced panel dataset of 762 firms in environmentally sensitive industries (energy, materials, and utilities) from ten Asia-Pacific emerging market countries over the period 2014–2024 was analyzed using fixed-effects panel regression.

Empirical Results: ESG performance had no statistically significant effect on either ROA or ROE. The moderation effects of board size, board independence, and board gender on the ESG–profitability nexus are also statistically insignificant.

Implications: These findings suggest that ESG activities in environmentally sensitive industries in Asia-Pacific emerging markets are primarily driven by legitimacy-seeking behavior rather than direct financial incentives.

JEL Classification: G30, G34, M14, Q56, O16

Downloads

Download data is not yet available.

References

Ahmad, N., Mobarek, A., & Roni, N. N. (2021). Revisiting the Impact of ESG on Financial Performance of FTSE350 UK Firms: Static and Dynamic Panel Data Analysis. Cogent Business and Management, 8(1), 1900500. https://doi.org/10.1080/23311975.2021.1900500.

Albitar, K., Hussainey, K., Kolade, N., & Gerged, A. M. (2020). ESG Disclosure and Firm Performance Before and After IR: The Moderating Role of Governance Mechanisms. International Journal of Accounting and Information Management, 28(3), 429–444. https://doi.org/10.1108/IJAIM-09-2019-0108.

Alodat, A. Y., & Hao, Y. (2025). Environmental, Social, and Governance (ESG) Disclosure and Firm Performance: Moderating Role of Board Gender Diversity and Sustainability Committee. Sustainable Development, 33(1), 636–651. https://doi.org/10.1002/sd.3126.

Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG Performance on Firm Value and Profitability. Borsa Istanbul Review, 2, S119-S127. https://doi.org/10.1016/j.bir.2022.11.006.

Baran, M., Kuźniarska, A., Makieła, Z. J., Sławik, A., & Stuss, M. M. (2022). Does ESG Reporting Relate to Corporate Financial Performance in the Context of the Energy Sector Transformation? Evidence from Poland. Energies, 15(2). https://doi.org/10.3390/en15020477

Behl, A., Kumari, P. S. R., Makhija, H., & Sharma, D. (2022). Exploring the Relationship of ESG Score and Firm Value Using Cross-Lagged Panel Analyses: Case of the Indian Energy Sector. Annals of Operations Research, 313(1), 231–256. https://doi.org/10.1007/s10479-021-04189-8.

Bhaskaran, R. K., Ting, I. W. K., Sukumaran, S. K., & Sumod, S. D. (2020). Environmental, Social, and Governance Initiatives and Wealth Creation for Firms: An Empirical Examination. Managerial and Decision Economics, 41(5), 710–729. https://doi.org/10.1002/mde.3131.

Brinette, S., Sonmez, F. D., & Tournus, P. S. (2024). ESG Controversies and Firm Value: Moderating Role of Board Gender Diversity and Board Independence. IEEE Transactions on Engineering Management, 71, 4298–4307. https://doi.org/10.1109/TEM.2023.3236667.

Chairani, C., & Siregar, S. V. (2021). The Effect of Enterprise Risk Management on Financial Performance and Firm Value: The Role of Environmental, Social, and Governance Performance. Meditari Accountancy Research, 29(3), 647–670. https://doi.org/10.1108/MEDAR-09-2019-0549.

Chancharat, N., Vetchagool, W., & Chancharat, S. (2026). ESG Performance and Corporate Value in an Emerging Market: The Moderating Role of Board Structures in Sustainability. Journal of Risk and Financial Management, 19(1), 87. https://doi.org/10.3390/jrfm19010087.

Chen, S., Song, Y., & Gao, P. (2023). Environmental, Social, and Governance (ESG) Performance and Financial Outcomes: Analyzing the Impact of ESG on Financial Performance. Journal of Environmental Management, 345, 118829. https://doi.org/10.1016/j.jenvman.2023.118829.

De Lucia, C., Pazienza, P., & Bartlett, M. (2020). Does Good ESG Lead to Better Financial Performances by Firms? Machine Learning and Logistic Regression Models of Public Enterprises in Europe. Sustainability, 12(13), 5317. https://doi.org/10.3390/su12135317.

Duque-Grisales, E., & Aguilera-Caracuel, J. (2021). Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack. Journal of Business Ethics, 168(2), 315–334. https://doi.org/10.1007/s10551-019-04177-w.

El Khoury, R., Nasrallah, N., & Alareeni, B. (2023). ESG and Financial Performance of Banks in the MENAT Region: Concavity–Convexity Patterns. Journal of Sustainable Finance and Investment, 13(1), 406–430. https://doi.org/10.1080/20430795.2021.1929807.

Folger-Laronde, Z., Pashang, S., Feor, L., & ElAlfy, A. (2022). ESG Ratings and Financial Performance of Exchange-Traded Funds During The COVID-19 Pandemic. Journal of Sustainable Finance and Investment, 12(2), 490–496. https://doi.org/10.1080/20430795.2020.1782814.

Garcia, A. S., & Orsato, R. J. (2020). Testing the Institutional Difference Hypothesis: A Study About Environmental, Social, Governance, and Financial Performance. Business Strategy and the Environment, 29(8), 3261–3272. https://doi.org/10.1002/bse.2570.

Giannopoulos, G., Fagernes, R. V. K., Elmarzouky, M., & Hossain, K. A. B. M. A. (2022). The ESG Disclosure and the Financial Performance of Norwegian Listed Firms. Journal of Risk and Financial Management, 15(6), 237. https://doi.org/10.3390/JRFM15060237.

Gracia, O., & Siregar, S. V. (2021). Sustainability Practices and the Cost of Debt: Evidence from ASEAN Countries. Journal of Cleaner Production, 300, 126942. https://doi.org/10.1016/j.jclepro.2021.126942.

Huang, D. Z. X. (2021). Environmental, Social and Governance (ESG) Activity and Firm Performance: A Review and Consolidation. Accounting & Finance, 61(1), 335–360. https://doi.org/10.1111/acfi.12569.

Hussain, W., Ong, T. S., Teh, B. H., & Javeed, S. A. (2026). Internationalization Channels and Firm Financial Performance among Asia-Pacific Corporations. Does ESG Integration in Business Matter? Environment, Development and Sustainability, in-press. https://doi.org/10.1007/s10668-026-07324-2.

Hwang, J., Kim, H., & Jung, D. (2021). The Effect of ESG Activities on Financial Performance during the COVID-19 Pandemic—Evidence from Korea. Sustainability, 13(20), 11362. https://doi.org/10.3390/su132011362

Jung, H. (2024). The Moderating Effect of Board Characteristics in the Relationship Between ESG and Corporate Financial Performance. Studies in Business and Economics, 19(2), 110–119. https://doi.org/10.2478/sbe-2024-0028,

Jyoti, G., & Khanna, A. (2021). Does Sustainability Performance Impact Financial Performance? Evidence from Indian Service Sector Firms. Sustainable Development, 29(6), 1086–1095. https://doi.org/10.1002/sd.2204.

Khamisu, M. S., Paluri, R. A., & Sonwaney, V. (2024). Environmental, Social, and Governance (ESG) Disclosure Motives for Environmentally Sensitive Industry: An Emerging Economy Perspective. Cogent Business & Management, 11(1), 2322027. https://doi.org/10.1080/23311975.2024.2322027.

Landi, G., & Sciarelli, M. (2019). Towards a More Ethical Market: The Impact of ESG Rating on Corporate Financial Performance. Social Responsibility Journal, 15(1), 11–27. https://doi.org/10.1108/SRJ-11-2017-0254.

Liu, L. (2024). Green Innovation, Firm Performance, and Risk Mitigation: Evidence from the USA. Environment, Development and Sustainability, 26(9), 24009–24030. https://doi.org/10.1007/s10668-023-03632-z.

Meeprom, S., Boonyanet, W., & Tongkong, S. (2024). Relationship of ESG Scores on Firm Performance: Moderating Roles of Board Size and CEO Duality. Journal of Infrastructure Policy and Development, 8(7), 4403. https://doi.org/10.24294/jipd.v8i7.4403

Menicucci, E., & Paolucci, G. (2023). ESG Dimensions and Bank Performance: An Empirical Investigation in Italy. Corporate Governance (Bingley), 23(3), 563–586. https://doi.org/10.1108/CG-03-2022-0094.

Moussa, A. S., Elmarzouky, M., & Shohaieb, D. (2024). Green Governance: How ESG Initiatives Drive Financial Performance in UK Firms? Sustainability, 16(24), 10894. https://doi.org/10.3390/su162410894

Naeem, M., Ullah, H., & Jan, S. (2021). The Impact of ESG Practices on Firm Performance: Evidence from Emerging Countries. Indian Journal of Economics and Business, 20(1), 731–750.

Naeem, N., Cankaya, S., & Bildik, R. (2022). Does ESG Performance Affect the Financial Performance of Environmentally Sensitive Industries? A Comparison Between Emerging and Developed Markets. Borsa Istanbul Review, 22, S128–S140. https://doi.org/10.1016/j.bir.2022.11.014.

Nandan, S. P. K., & Sinku, S. (2024). The ESG Evolution: Bridging the Gap Between Global Standards and Local Realities in Emerging Markets. Nanotechnology Perceptions, 20(S16), 137–153. https://doi.org/10.62441/nano-ntp.vi.3623

Naysary, B., Kamal, J. Bin, Mirpoorian, S. N., & Shrestha, K. (2025). Estimating the Causal Impact of the Paris Agreement on the ESG Market: A Bayesian Structural Time-Series Approach. Journal of Environmental Management, 395, 127829. https://doi.org/10.1016/j.jenvman.2025.127829.

Nilipour, A., De Silva, T.-A., & Li, X. (2020). The Readability of Sustainability Reporting in New Zealand over time. Australasian Accounting, Business and Finance, 14(3), 86–107. https://doi.org/10.14453/aabfj.v14i3.7.

Rahi, A. F., Akter, R., & Johansson, J. (2022). Do Sustainability Practices Influence Financial Performance? Evidence from the Nordic Financial Industry. Accounting Research Journal, 35(2), 292–314. https://doi.org/10.1108/ARJ-12-2020-0373.

Rossi, M., Chouaibi, J., Chouaibi, S., Jilani, W., & Chouaibi, Y. (2021). Does a Board Characteristic Moderate the Relationship between CSR Practices and Financial Performance? Evidence from European ESG Firms. Journal of Risk and Financial Management, 14(8), 354. https://doi.org/10.3390/jrfm14080354.

Sandberg, H., Alnoor, A., & Tiberius, V. (2023). Environmental, Social, and Governance Ratings and Financial Performance: Evidence from the European Food Industry. Business Strategy and the Environment, 32(4), 2471–2489. https://doi.org/10.1002/bse.3259.

Saygili, E., Arslan, S., & Birkan, A. O. (2022). ESG Practices and Corporate Financial Performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525–533. https://doi.org/10.1016/j.bir.2021.07.001.

Shakil, M. H. (2021). Environmental, Social and Governance Performance and Financial Risk: Moderating Role of ESG Controversies and Board Gender Diversity. Resources Policy, 72, 102144. https://doi.org/10.1016/j.resourpol.2021.102144.

Tashman, P., Marano, V., & Kostova, T. (2019). Walking the Walk or Talking the Talk? Corporate Social Responsibility Decoupling in Emerging Market Multinationals. Journal of International Business Studies, 50(2), 153–171. https://doi.org/10.1057/s41267-018-0171-7.

The United Nation Climate Change Conference. (2021). Glasgow Climate Pact COP26. Retrieved from: https://Ukcop26.Org/Cop 26-Goals/.

Van, H. V., Nguyen, N. M., Afifa, M. A., Vo, D. T. T., & Van Bui, D. (2025). Sustainability Reporting Quality and Firm Value in ASEAN+3: A Series Moderation Model. Corporate Social Responsibility and Environmental Management, 32(2), 2207–2224. https://doi.org/10.1002/csr.3059.

Wu, S., Li, X., Du, X., & Li, Z. (2022). The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure. Sustainability, 14(21), 14507. https://doi.org/10.3390/su142114507.

Xie, H., Qin, Z., & Li, J. (2024). ESG Performance and Corporate Carbon Emission Intensity: Based on Panel Data Analysis of A-Share Listed Companies. Frontiers in Environmental Science, 12, 1483237. https://doi.org/10.3389/fenvs.2024.1483237.

Yoon, B., Kim, B., & Lee, J. H. (2019). Is Earnings Quality Associated with Corporate Social Responsibility? Evidence from the Korean Market. Sustainability, 11(15), 4116. https://doi.org/10.3390/su11154116.

Yuan, X., Li, Z., Xu, J., & Shang, L. (2022). ESG Disclosure and Corporate Financial Irregularities – Evidence from Chinese Listed Firms. Journal of Cleaner Production, 332, 129992. https://doi.org/10.1016/j.jclepro.2021.129992.

Zioło, M., Bąk, I., & Spoz, A. (2023). Incorporating ESG Risk in Companies’ Business Models: State of Research and Energy Sector Case Studies. Energies, 16(4), 1809. https://doi.org/10.3390/en16041809.