ESG and Banking Performance in ASEAN-5: Disaggregated Analysis Using System GMM and LSDVC

This study examines the impact of aggregate and disaggregate environmental, social and corporate governance (ESG) activities on the financial performance of banking firms in the ASEAN-5 countries, a critical market characterized by its bank-based financial system. The analysis draws on data from 32 listed banks in Indonesia, Malaysia, the Philippines, Singapore and Thailand over the period 2015 to 2022 using a two-step Generalized Method of Moments and Least Squares Dummy Variable estimators. By incorporating macroeconomic, bank-specific and financial development indicators, the findings reveal that the aggregate ESG activities positively influence financial performance. Consistently, the disaggregate (individual pillar) ESG activities of social and governance posit positive impacts on FP, whilst the environmental pillar shows no significant influence. These findings underscore the heterogeneous contributions of the individual ESG pillars to bank performance in the ASEAN-5 context. By disaggregating ESG activities into their respective pillars, this study contributes to the literature by offering pillar-specific evidence on the ESG–FP relationship, moving beyond the conventional focus on aggregate ESG. Practically, the findings imply the need for tailored ESG strategies to ensure profitability of banks in ASEAN and other developing markets. Policymakers are encouraged to develop and enforce robust ESG regulations both at country and ASEAN levels to support sustainable banking activities and further promote financial stability in the region.