The Influence of ESG Performance and ESG Momentum on Stock Returns and Volatility: Evidence from Southeast Asia

This study examines the influence of Environmental, Social, and Governance (ESG) performance and ESG Momentum on stock returns and return volatility among publicly listed firms in Southeast Asia, a region characterized by rapid economic growth and increasing sustainability challenges. Using a panel dataset of 155 firms and 721 firm-year observations, this study applies fixed-effects regression models with Driscoll–Kraay standard errors to control cross–sectional dependence and heteroskedasticity. The results indicate that ESG performance has a significant positive effect on stock returns and a significant negative effect on stock volatility, suggesting that firms with stronger ESG practices achieve superior financial performance while exhibiting lower risk. In contrast, ESG Momentum does not significantly explain stock returns and shows only a marginal positive association with volatility, implying that short-term ESG changes are not immediately priced by investors and may generate temporary uncertainty in capital markets. Beyond financial performance, this study contributes to the sustainable finance literature by linking ESG outcomes to the United Nations Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth), SDG 12 (Responsible Consumption and Production), SDG 13 (Climate Action), and SDG 16 (Peace, Justice, and Strong Institutions). The findings highlight the importance of long-term ESG integration in enhancing corporate accountability, promoting market stability, and supporting sustainable economic development across emerging markets in Southeast Asia.