ESG practices and financial performance in Malaysia PN17 and GN3 distressed companies

This study examined the relationship between environmental, social, and governance (ESG) practices and corporate financial performance (CFP) among Malaysian financially distressed listed companies classified under PN17 and GN3. Unlike many ESG studies that focused on general listed companies, this study focused on distressed companies, where governance quality, investor confidence, and recovery capacity were more critical. Using annual panel data from 2015 to 2024, ESG was measured using environmental, social, and governance pillar scores, as well as a composite ESG score. CFP was measured using return on assets (ROA) and return on investment (ROI), while company size, company age, revenue growth, debt, insider shareholdings, and board size were included as control variables. The findings showed that governance performance was the most consistent ESG dimension associated with stronger financial outcomes among distressed companies. Environmental and social pillars did not show statistically significant relationships with ROA and ROI. The composite ESG score was also insignificant, suggesting that combining ESG dimensions into one overall score may hide important differences between ESG pillars. The significance of this study lies in showing that ESG did not operate as a single uniform construct among financially distressed companies. Instead, governance appeared to be the most decision-relevant ESG dimension in the PN17 and GN3 context. These findings contribute to ESG and management accounting literature by showing how governance-related ESG information can support performance evaluation, risk monitoring, capital allocation, and recovery planning among distressed companies.