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Abstract

Sustainable finance has become a major issue since the formation of the UN SDGs. At the same time, ESG disclosure has grown in its importance and is required by the financial authorities. Business practitioners, including investors, are now considering ESG performance as one of the important criteria for a good investment. The implementation of ESG in ASEAN has only recently gained popularity. As previous literature is limited, we identify an opportunity to investigate the relationship between a firm’s ESG rating and its profitability and cost of capital within ASEAN countries plus Japan, China, and the Korean Republic. The financial data and ESG ratings of 489 listed firms in the period of 2017–2021, comprising 1718 observations, were collected. Using panel data regression, we found that the ESG rating significantly adds value to a firm’s ROA/ROE and reduces the cost of capital. Yet, while this is significant, we also concluded that the correlation between ESG ratings and profitability or cost of capital remains weak. This study contributes to enriching the existing literature about sustainable finance practices. To the best of our knowledge, this is the first study that provides a comprehensive result, as we also investigate the diversity of ESG practices among the ASEAN+3 countries.

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