The Impact of ESG Performance on Financial Sustainability: Evidence from Malaysian Non-Financial Firms

HRMARS - This study examines the effect of environmental, social, and governance (ESG) performance on financial sustainability (FS) among non-financial firms in Malaysia. The research aims to determine whether ESG initiatives contribute to firms’ long-term financial sustainability. Using panel data of Malaysian non-financial listed firms, the study employs a fixed effects (FE) regression model to control for unobserved heterogeneity. Correlation and variance inflation factor (VIF) analyses confirm the absence of multicollinearity, while the Hausman specification test supports the FE model as the most appropriate estimation technique. The results reveal that ESG performance significantly and positively influences FS, and each ESG pillar (environmental, social, and governance) contributes to sustainable financial outcomes. Robustness tests using an alternative measure of FS confirm the consistency of these findings. The findings underscore the importance of integrating ESG practices into firms’ strategic operations to enhance financial sustainability. Policymakers and regulators are encouraged to promote stronger ESG disclosure frameworks to improve transparency and comparability. This study provides new empirical evidence from Malaysia, highlighting the role of ESG engagement in promoting corporate financial sustainability within emerging markets.