The Impact of ESG Performance on Bank Profitability: Evidence from ASEAN-5

Abstract

This study examines whether Environmental, Social, and Governance (ESG) performance contributes to bank profitability in ASEAN-5 countries. As sustainability principles increasingly shape financial markets, banks are expected not only to perform their intermediation role efficiently but also to operate ethically and responsibly. However, empirical evidence on whether ESG performance translates into tangible financial benefits remains mixed, particularly in emerging markets. Using balanced panel data of commercial banks operating in Indonesia, Malaysia, Thailand, the Philippines, and Singapore over the period 2015–2024, this study applies a Fixed Effect Model to analyze the relationship between ESG performance and bank profitability, measured by Return on Assets (ROA) and Return on Equity (ROE). The model incorporates bank-specific control variables total deposits, total loans, and total assets as well as macroeconomic conditions captured by inflation and economic growth. The empirical results show that ESG performance has a positive and statistically significant effect on both ROA and ROE, indicating that ethical banking practices enhance operational efficiency and shareholder returns. Economic growth strengthens profitability, while inflation exerts a negative effect. These findings suggest that ESG performance represents more than reputational signaling; it functions as a strategic asset that supports long-term financial performance. This study contributes to the sustainable finance literature by providing multi country empirical evidence from ASEAN-5 banks and offers insights for regulators, banks, and investors in emerging markets.