Relationship between ESG disclosure and firm performance: Malaysian banking sector / Nik Aida Suraya Nik Azhar

Earlier firms were evaluated mostly from their financial performance perspective, but with the increasing attention to environmental, social and governance (ESG) performance of firms became key concerns to stakeholders. Given the demand of stakeholders for increased transparency on environmental, social, and governance (ESG) issues, businesses all over the world have rapidly begun adopting the practice of sustainability reporting. While many studies exist on the association of ESG concerns of an organization with its financial profitability, the literature in the context of banking is still limited. The purpose of this study is to explore the relationship between Environmental, Social, and Governance Disclosure (ESG) and firm performance by focusing on the banking sector. Firm performance is being measured using operational (Return on Assets), financial (Return on Equity), and market performance (Tobin's Q). This study looked at 14 different banks in Malaysia over the course of seven years (2015-2021). All information for the variables is hand-collected and analysed using EViews. The study shows that the relationship between performance and different disclosures is complicated; for instance, it is found that environmental disclosure (ED) has a positive influence on Tobin's Q but a negative impact on ROA and ROE. Additionally, corporate social responsibility disclosure (CSRD) has a negative effect on return on assets (ROA). The findings of this research can be implemented into a viable model that can be used by financial institutions all over the world to concentrate on the impact that ESG disclosure plays on performance.