In recent years, there has been growing interest in the integration of environmental, social and governance (ESG) factors into investment decisions and assessing firm performance. This study examines the impact of ESG factors and firm characteristics on financial performance of 96 firms listed on FTSE4G Bursa Malaysia between the years 2014 and 2022. The study applies four models using the integration of accounting-based measurements, namely, net profit margin, return on assets, return on equity, and Tobin’s q. This study yielded mixed findings. Firstly, it revealed a positive relationship between ESG factors and financial performance, which was measured using Tobin’s q. Nevertheless, the impact of ESG factors on net profit margin, return on assets and return on equity are insignificant. This indicates the increased importance of ESG factors in the process of making investment decisions and assessing the value of the market. Furthermore, Tobin’s q possesses a distinctive characteristic as it measures a company’s market value relative to traditional financial performance metrics. Secondly, the study found that the impact of ESG factors is minimal on financial performance, including Tobin’s q. It indicates there are potential trade-offs between short-term financial impact and long-term ESG goals in the firm. This study suggests that firms should be incentivised to integrate corporate strategy and investment decisions.
RUHAINI et al. (Sun,) studied this question.