Integrating ESG, Innovation, and Institutional Dynamics: Evidence from Cross-Country and Sectoral Differences in ASEAN Firms

This study examines how Environmental, Social, and Governance (ESG) performance influences firm financial performance within the ASEAN context by integrating internal mechanisms and external institutional dynamics. Using a quantitative approach, this study analyzes 270 financial and non-financial companies from five ASEAN countries over the period 2019–2023. Structural Equation Modeling using Partial Least Squares (PLS-SEM) with WarpPLS is employed to test direct, mediating, and moderating relationships, complemented by multi-group analysis to assess cross-country and sectoral differences. The results show that ESG performance has a positive and significant effect on firm financial performance, both directly and indirectly through innovation capacity. At the same time, stakeholder trust and resource efficiency do not exhibit significant mediating effects. Furthermore, institutional quality, policy effectiveness, and cultural sustainability orientation strengthen the ESG–performance relationship, whereas market competition intensity does not play a significant moderating role. The findings also reveal substantial heterogeneity across countries and sectors, indicating that ESG effectiveness is highly context-dependent. Overall, this study highlights that ESG creates value not only through internal capabilities but also through supportive institutional and cultural environments, emphasizing the importance of contextual factors in shaping sustainability outcomes in emerging markets.