THE IMPACT OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) ON THE ECONOMIC GROWTH OF ASEAN-5 COUNTRIES
DOI:
https://doi.org/10.29121/granthaalayah.v11.i6.2023.5194Keywords:
ESG, ASEAN-5 Countries, Principal Component Analysis, Economic Growth Jel Classifications, Q01, O40, E02, C22Abstract [English]
ESG program has become crucial for long-term value and business resiliency through efficient use of natural resources and effective policies on social and economic aspects. A country which has a good ESG performance would achieve higher economic growth. This study examines the ESG country-level performance across the ASEAN-5 by assessing the impact of ESG on economic growth. The study utilized annual data from 1990 to 2020 for five countries - Indonesia, Malaysia, the Philippines, Singapore, and Thailand. This study constructs the ESG index at the country level by employing frequency statistics of text mining and factor analysis for each country over time. Establishing an ESG country index would better reflect the ASEAN-5 nation's progress in ESG practices. Besides that, the ARDL method was employed to establish the relationship between ESG and economic growth. The results revealed mixed impacts of ESG on economic growth, which can be attributed to the variations in ESG practices and policies across the countries. Some results showed a significant positive impact of ESG practices on economic growth, while others showed no significant or negative impact. This study emphasizes the importance of a suitable ecosystem that supports the effectiveness of ESG adoption. This study recommends several precautionary policies, such as low-interest loans, grants, and tax relief, to support a firm's resilience during pandemics.
Downloads
References
ASEAN. (2020). ASEAN Comprehensive Recovery Framework. ASEAN : A Community of Opportunities for All, 7, 1, 37–72.
ASEAN. (2022). Investing in ASEAN 2021–2022.
Avetisyan, E., & Hockerts, K. (2017). The Consolidation of the Esg Rating Industry as an Enactment of Institutional Retrogression. Business Strategy and the Environment, 26(3), 316–330. https://doi.org/10.1002/bse.1919. DOI: https://doi.org/10.1002/bse.1919
Avramov, D., Cheng, S., Lioui, A., & Tarelli, A. (2022). Sustainable Investing with ESG Rating Uncertainty. Journal of Financial Economics, 145(2), 642–664. https://doi.org/10.1016/j.jfineco.2021.09.009. DOI: https://doi.org/10.1016/j.jfineco.2021.09.009
Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG Performance on Firm Value and Profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006. DOI: https://doi.org/10.1016/j.bir.2022.11.006
Ayuso, S., Sánchez, P., Retolaza, J. L., & Figueras-Maz, M. (2020). Social Value Analysis: The Case of Pompeu Fabra University. Sustainability Accounting, Management and Policy Journal, 11(1), 233–252. https://doi.org/10.1108/SAMPJ-11-2018-0307. DOI: https://doi.org/10.1108/SAMPJ-11-2018-0307
Bannier, C. E., Bofinger, Y., & Rock, B. (2019). Doing Safe by Doing Good: ESG Investing and Corporate Social Responsibility in the U.S. and Europe. CFS Working Paper Series, 621.
Billio, M., Costola, M., Hristova, I., Latino, C., & Pelizzon, L. (2021). Inside the ESG Ratings: (Dis) Agreement and Performance. Corporate Social Responsibility and Environmental Management, 28(5), 1426–1445. https://doi.org/10.1002/csr.2177. DOI: https://doi.org/10.1002/csr.2177
Boffo, R., & Patalano, B. (2020). ESG Investing : Practices, Progress and Challenges, OECD.
Borms, S., Boudt, K., Van Holle, F., & J. (2021). Semi-Supervised Text Mining for Monitoring the News About the ESG Performance of Companies. In Data Science for Economics and Finance. https://doi.org/10.1007/978-3-030-66891-4. DOI: https://doi.org/10.2139/ssrn.3868414
Brandon, R. G., Schmidt, P. S., & Brandon, R. G. (2021). ESG Rating Disagreement and Stock Returns, June.
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), 1–26. https://doi.org/10.3390/su12135317. DOI: https://doi.org/10.3390/su12135317
Eccles, N. S., & Viviers, S. (2011). The Origins and Meanings of Names Describing Investment Practices that Integrate a Consideration of ESG Issues in the Academic Literature. Journal of Business Ethics, 104(3), 389–402. https://doi.org/10.1007/s10551-011-0917-7. DOI: https://doi.org/10.1007/s10551-011-0917-7
Engelhardt, N., Ekkenga, J., & Posch, P. (2021). Esg Ratings and Stock Performance During the Covid-19 Crisis. Sustainability, 13(13), 1–15. https://doi.org/10.3390/su13137133. DOI: https://doi.org/10.3390/su13137133
Escrig-Olmedo, E., Fernández-Izquierdo, M., Ferrero-Ferrero, I., Rivera-Lirio, J., & Muñoz-Torres, M. (2019). Rating the Raters: Evaluating How ESG Rating Agencies Integrate Sustainability Principles. Sustainability, 11(3). https://doi.org/10.3390/su11030915. DOI: https://doi.org/10.3390/su11030915
Ferktaji, E. L. (2019). Munich Personal RePEc Archive the Dynamic Causality Between ESG and Economic Growth : Evidence from Panel Causality Analysis Ho, Sy-Hoa and OUEGHLISSI, Rim and el FERKTAJI, 95390.
Goel, R. K., Saunoris, J. W., & Goel, S. S. (2021). Supply Chain Performance and Economic Growth: The Impact of COVID-19 Disruptions. Journal of Policy Modeling, 43(2), 298–316. https://doi.org/10.1016/j.jpolmod.2021.01.003. DOI: https://doi.org/10.1016/j.jpolmod.2021.01.003
GSIA. (2016). Global Sustainable Investment Review. 2016. Indonesia. (2022). ID, March.
Landi, G. C., Iandolo, F., Renzi, A., & Rey, A. (2022). Embedding Sustainability in Risk Management: The Impact of Environmental, Social, and Governance Ratings on Corporate Financial Risk. Corporate Social Responsibility and Environmental Management, January(4), 1096–1107. https://doi.org/10.1002/csr.2256. DOI: https://doi.org/10.1002/csr.2256
Luo, D. (2022). ESG, Liquidity, and Stock Returns. Journal of International Financial Markets, Institutions and Money, 78, 101526. https://doi.org/10.1016/j.intfin.2022.101526. DOI: https://doi.org/10.1016/j.intfin.2022.101526
Madison, N., & Schiehll, E. (2021). ESG Ratings and Scores with a High Financial Materiality Index May Provide Investment Opportunities as They Allow Identification of Firms with a High Score on Business-Critical ESG Issues. Sustainability (Switzerland), 13(7). https://doi.org/10.3390/su13073652. DOI: https://doi.org/10.3390/su13073652
Mahi, M., Phoong, S. W., Ismail, I., & Isa, C. R. (2020). Energy-Finance-Growth Nexus in ASEAN-5 Countries: An ARDL Bounds Test Approach. Sustainability, 12(1), 1–16. https://doi.org/10.3390/SU12010005. DOI: https://doi.org/10.3390/su12010005
Margaretic, P., & Pouget, S. (2018). Sovereign Bond Spreads and Extra-Financial Performance: An Empirical Analysis of Emerging Markets. International Review of Economics and Finance, 58(April), 340–355. https://doi.org/10.1016/j.iref.2018.04.005. DOI: https://doi.org/10.1016/j.iref.2018.04.005
Menegaki, A. N. (2019). The ARDL Method in the Energy-Growth Nexus Field ; Best Implementation Strategies. Economies, 7(4), 1–16. https://doi.org/10.3390/economies7040105. DOI: https://doi.org/10.3390/economies7040105
Minkkinen, M., Niukkanen, A., & Mäntymäki, M. (2022). What About Investors? ESG Analyses as Tools for Ethics-Based AI Auditing. AI and SOCIETY. https://doi.org/10.1007/s00146-022-01415-0. DOI: https://doi.org/10.1007/s00146-022-01415-0
NEF. (2015). Reducing Economic Inequality as a Sustainable Development Goal. 1–61.
Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) Cointegration Technique : Application and Interpretation. Journal of Statistical and Econometric Methods, 5(3), 63–91.
Palma-Ruiz, J. M., Castillo-Apraiz, J., & Gómez-Martínez, R. (2020). Socially Responsible Investing as a Competitive Strategy for Trading Companies in Times of Upheaval Amid Covid-19: Evidence from Spain. International Journal of Financial Studies, 8(3), 1–13. https://doi.org/10.3390/ijfs8030041. DOI: https://doi.org/10.3390/ijfs8030041
Phillips, P., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression Author (s) : Peter C. B. Phillips and Pierre Perron Published by : Oxford University Press on behalf of Biometrika Trust Stable, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335. DOI: https://doi.org/10.1093/biomet/75.2.335
Sassen, R., Hinze, A. K., & Hardeck, I. (2016). Impact of ESG Factors on Firm Risk in Europe. Journal of Business Economics, 86(8), 867–904. https://doi.org/10.1007/s11573-016-0819-3. DOI: https://doi.org/10.1007/s11573-016-0819-3
Shaikh, I. (2022). On the Relationship Between Policy Uncertainty and Sustainable Investing. Journal of Modelling in Management, 17(4), 1504–1523. https://doi.org/10.1108/JM2-12-2020-0320. DOI: https://doi.org/10.1108/JM2-12-2020-0320
Tampakoudis, I., Noulas, A., Kiosses, N., & Drogalas, G. (2021). The Effect of ESG on Value Creation from Mergers and Acquisitions. What Changed During the COVID-19 Pandemic? Corporate Governance, 21(6), 1117–1141. https://doi.org/10.1108/CG-10-2020-0448. DOI: https://doi.org/10.1108/CG-10-2020-0448
Tarmuji, I., Maelah, R., & Tarmuji, N. H. (2016). The Impact of Environmental, Social and Governance Practices (ESG) on Economic Performance: Evidence from ESG Score. International Journal of Trade, Economics and Finance, 7(3), 67–74. https://doi.org/10.18178/ijtef.2016.7.3.501. DOI: https://doi.org/10.18178/ijtef.2016.7.3.501
Windolph, S. E. (2011). Assessing Corporate Sustainability Through Ratings : Challenges and their Causes. Journal of Environmental Sustainability, 1(1), 1–22. https://doi.org/10.14448/jes.01.0005. DOI: https://doi.org/10.14448/jes.01.0005
Zhang, D., Zhao, Z., & Lau, C. K. M. (2022). Sovereign ESG and Corporate Investment : New Insights from the United Kingdom. Technological Forecasting and Social Change, 183(July). https://doi.org/10.1016/j.techfore.2022.121899. DOI: https://doi.org/10.1016/j.techfore.2022.121899
Zhou, X., Caldecott, B., Harnett, E., & Schumacher, K. (2020). The Effect of Firm-Level ESG Practices on Macroeconomic Performance. SSRN Electronic Journal, 4214(20), 0–49. https://doi.org/10.2139/ssrn.3618748. DOI: https://doi.org/10.2139/ssrn.3618748
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Nur Syazwina Ghazali, Siti Nurazira Mohd Daud, Nur Hafizah Ismail
This work is licensed under a Creative Commons Attribution 4.0 International License.
With the licence CC-BY, authors retain the copyright, allowing anyone to download, reuse, re-print, modify, distribute, and/or copy their contribution. The work must be properly attributed to its author.
It is not necessary to ask for further permission from the author or journal board.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.
