The Effect of ESG Dimensions on Banking Performance: An Empirical Investigation in Asia Pacific

Abstract

This study aims to assess whether there is a relationship between the overall ESG, ENV, SOC, and GOV indices on banking performance based on three dimensions, namely financial performance indicators (ROE), company operations (ROA), and banking markets (Tobin's Q). The research sample includes 656 observations from 164 banks registered during 2018-2021. The Ordinary Least Squares (OLS) regression model is used to test the relationship between the variables studied and prove the research hypothesis. The results show that the overall ESG, ENV, SOC, and GOV indices have a non-significant negative effect on ROA. However, those have a significant negative effect on market performance as measured by Tobin's Q. Interestingly, the overall ESG, ENV, SOC, and GOV indices have a positive effect on banking ROE in Asia Pacific. The results of this study can be used to formulate appropriate policies for bank managers and government regulators to ensure that the optimal allocation of resources in ESG practices can maximize the company's financial performance and improve the welfare of stakeholders as a whole.