Environmental, social, and governance performance and firm performance in Thailand: The moderating role of governance

Abstract

This study investigates how Environmental, Social, and Governance (ESG) performance related to corporate performance among firms listed on Thailand Sustainability Investment (THSI) index from 2018 to 2022, that are part of the Stock Exchange of Thailand (SET). This research utilizes agency theory and stakeholder theory to assess the influence of ESG aspects on company outcomes through Partial Least Squares Structural Equation Modeling (PLS-SEM), emphasizing direct effects and the moderating role of governance. Findings reveal that Environmental, Social and Governance performance impacts firm performance in diverging directions. Environmental performance has a significant negative relationship with Return on Assets (ROA), reflecting the financial impact associated with environmental activities during the investigated period, whereas social performance shows substantial positive relations with ROA. Regarding governance, results show a positive direct effect on ROA, showing enhanced operational efficiency, on other hand, results indicate a negative influence on Tobin’s Q, indicating potential market concerns over monitoring costs. Crucially, significantly strengthening the positive influence of social performance on ROA, governance serves as a selective moderating mechanism. This implies that by reducing agency conflicts, strong internal control ensures social investments are efficiently translated into accounting returns. In contrast, the environmental pillar shows no moderating effect. These results emphasize the importance of dissection ESG indicators. Investors and government bodies should prioritize dimension-specific evaluations above overall rating in order to better align sustainability activities with financial performance.