Financing cost and ESG performance: the role of sustainability committees as governance enablers among Southeast Asian firms

Purpose This study investigates whether the financing cost affects Environmental, Social and Governance (ESG) performance in publicly listed firms in Southeast Asian countries. It also examines the moderating role of the sustainability committee in this relationship. Design/methodology/approach Using a panel dataset of 2,920 firm-year observations extracted from the Thomson Reuters (Refinitiv) database of listed firms on the stock exchanges of Malaysia, Thailand, Singapore and Indonesia stock exchanges between 2014 and 2023, the study employs a fixed-effects regression model. In addition, the two-stage least squares regression method is used to address the endogeneity issue. Findings The results indicate a positive and significant relationship between financing cost and ESG performance, suggesting that firms continue to increase their ESG performance irrespective of higher financing costs to enhance their reputation and legitimacy. However, the presence of a sustainability committee appears to significantly moderate this relationship, potentially due to its role in balancing short-term capital cost pressures with long-term ESG goals. Practical implications These findings help corporate decision-makers and regulators aiming to integrate financial management with sustainability performance. While higher financing costs may incentivize ESG performance, governance structures must be effectively designed to support, rather than dilute, sustainability efforts. Originality/value The results of this study are novel and specifically tailored to ASEAN firms. This study is one of the first to examine how financing costs and governance jointly impact ESG outcomes in Southeast Asian firms, which are still underexplored.