The Effect of Environmental, Social and Governance Implementation on the Performance of Malaysian Listed Property Companies
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Abstract
Since its formal introduction in 2004, the environmental, social and governance (ESG) criteria have evolved into critical non-financial performance metrics in corporate governance and investment decision-making. Although the initial adoption was slow, ESG has gained substantial momentum as investors increasingly pursue responsible investment strategies. Corporations are now under greater pressure to integrate ESG principles into their business operations, especially in sectors with significant environmental and social impacts, such as real estate. In Malaysia, regulatory bodies like Bursa Malaysia have mandated ESG disclosures for all listed companies. Despite this, the level of ESG compliance within the property sector remains relatively low. This shortfall is primarily due to limited awareness, inadequate technical understanding and a lack of integration of ESG frameworks among key industry stakeholders. These challenges can hinder firms from meeting ESG expectations, leading to reputational risks and potential impacts on financial performance. This study investigates the relationship between ESG compliance and financial performance among 60 Malaysian listed property companies from 2019 to 2022. Using Pearson correlation analysis, the study evaluates the association between ESG indicators and key financial metrics – return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt-to-equity ratio (D/E) and current ratio (CR). The findings reveal a positive correlation between ESG compliance and profitability indicators, suggesting that companies with stronger ESG practices tend to perform better financially. These results offer valuable insights for policymakers, investors and property developers in aligning ESG strategies with corporate financial goals. Moreover, the findings underscore the importance of strengthening ESG literacy and implementation in Malaysia’s property sector to enhance long-term sustainability and competitive advantage.
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