ESG Policy Uncertainty and Stock Returns in ASEAN Markets: Does Pillar Composition Matter? (Asian Development Policy Review)

Summary

• The study analyzes how composite and individual ESG pillar scores moderated the impact of ESG policy uncertainty (ESGUI) on monthly stock returns across Indonesia, Malaysia, Singapore, Thailand, and Vietnam from 2015 to 2024.p.1
• From an initial universe of 3,963 listed firms, approximately 830 firms (21%) had at least one valid Refinitiv ESG score observation, with Malaysia representing approximately 61% of ESG-covered firms.p.5
• The sample recorded an average monthly stock return of 0.64% (standard deviation 13.6%), an average composite ESG score of 44.02, a governance mean of 49.69, a social mean of 45.51, and an environmental mean of 35.25.p.7
• Composite ESG showed no statistically significant moderating effect on returns under ESGUI (β = −1×10⁻⁶, SE = 2.8×10⁻⁵).p.8
• Both level and shock social interaction effects were concentrated in Malaysia, dropping to near-zero (β = 1×10⁻⁶ and β = −1.0×10⁻⁵, respectively) when Malaysian firms were excluded.p.11

Key insights

1. Insignificant composite ESG results conceal opposing moderating effects between the negative Social pillar and positive Governance pillar.p.1
2. The environmental pillar shows no statistically significant moderating effect on stock returns under either uncertainty levels or uncertainty shocks.p.8
3. Higher Social pillar scores are associated with heightened rather than dampened return sensitivity to ESG policy uncertainty, contrary to direct stakeholder insurance predictions.p.8
4. Governance scores exhibit a positive moderating effect on uncertainty levels (β = 1.5×10⁻⁵, p < 0.05) that is fragile, non-robust to GDP weighting, and confined to the COVID-19 period.p.9
5. The Social pillar moderates both persistent regulatory regime levels and immediate month-over-month GDP-weighted uncertainty shocks.p.13
6. The shock effect of ΔESGUI-GDP is strictly contemporaneous, falling to zero (β = 1×10⁻⁶) when lagged by one month.p.13
7. Substituting GEPU or ASEAN WUI for ESGUI yields insignificant interaction terms, confirming that return sensitivity is specific to ESG policy uncertainty.p.9