Examining the impact of ESG score performance on bank market value : a case study of banking industry in 6 ASEAN countries

Abstract

This research examines the correlations between ESG performance and market value of banks within the ASEAN region. Specifically, it examines the impact of ESG combined score and its individual pillars Environmental (ENVS), Social (SPS), and Governance (GPS) on bank market capitalization. The analysis covers a panel of 50 banks from Indonesia, Malaysia, Singapore, Thailand, the Philippines, and Vietnam over the period 2005 to 2024. To assess both short-run and long-run dynamics, the study employs the Autoregressive Distributed Lag (ARDL) model, supported by robustness checks using the Generalized Method of Moments (GMM) and fixed-effect models. The findings reveal that in the long run, ESG scores and their sub-components do not have a statistically significant effect on bank market value, as indicated by a positive but insignificant error correction term (ECT = 0.393, p = 0.000). However, in the short run, the fixed-effect model shows that ESG has a positive and significant impact at the 10% level, while the Environmental and Social pillars are significant at the 5% level. The Governance pillar shows a positive but statistically insignificant correlation with market value. These results suggest that while ESG activities may not yield long-term market benefits in the ASEAN banking sector, they can enhance market value in the short term, particularly through environmental and social performance. This resesarch highlights the importance of integrating ESG considerations into short-term strategies, especially in emerging markets, while acknowledging the need for further development in regulatory frameworks and investor awareness to realize long-term value from ESG initiatives.