The influence of ESG scores on firm value and profitability: evidence from the FTSE Bursa Malaysia Top 100 index.

Abstract

The area of environmental, social, and governance (ESG) investing has experienced significant growth over the past decade. On a global front, the United Nations Principles for Responsible Investment (UN-PRI) encourage investors to incorporate ESG factors into their assessment of a company's performance. The growing interest in ESG factors among investors, including institutional and retail investors in Malaysia, may reflect that the decision could affect the long-term performance of a company. Nonetheless, the emergence of the COVID-19 pandemic has exacerbated other challenges in the development of the capital market. This study aims to investigate the influence of ESG scores assigned to the performance in terms of the value and profitability of companies in Malaysia. The study analyses the data of 33 companies under the FTSE Bursa Malaysia Top 100 index with complete ESG data from 2019 to 2021. Panel regression is employed to analyse the influence of the ESG score on firm profitability and value. The study concluded that aggregate ESG scores do not significantly influence firm value and profitability. In addition, only the social score is found to have a significant impact on firm value, and all individual ESG scores are found to have no significant impact on firm value or profitability.