THE INTERSECTION OF ESG AND PROFITABILITY: A MALAYSIAN BANKING PERSPECTIVE

Abstract

One of the most commonly discussed topics in today’s business world relates to Environmental, Social, and Governance (“ESG”). ESG not only concerns business operations but also dives into how business operations impact the environment and the community. ESG is of particular importance to the banking industry as it forms the foundation of a country’s economy. This study looked at how ESG factors (Environmental Factors: Total Waste Consumption (“IETWC”) and Total Carbon Emission (“IETCE”) relate to the financial performance of commercial banks in Malaysia. The ESG factors are: Overall Gender Diversity (“ISGD”), Training and Development Expenditure (“ISTDE”), and Board Gender Diversity (“IGBGD”). The governance factors are: Board Size (“IGBOD”) and Return on Assets (“ROA”). The collected data were analysed using the Correlation Analysis as well as the Multiple Regression Analysis. Overall, the correlation analysis found that IETWC, IETCE, ISGD, and IGBGD have a positive impact on DROA, while ISTDE and IGBOD have a negative impact. It also suggests that the collective environmental and governance factors showed a positive relationship with ROA while the collective social factor showed a negative impact on ROA. The multiple regression analysis, however, showed that only ISGD and IGBGD had a significant relationship with DROA. The findings of this research point to the growing importance of ESG for the commercial banking sector in Malaysia. To ensure sustainability, commercial banks in Malaysia should prioritize their ESG performance.