The Relationship between ESG and Firm Performance in Asia Pacific Countries: Moderating Effect of Interest Rate

Abstract

The aim of current study is to address the impact of ESG on the financial performance of the firm and to check the impact of interest rate act as a moderator between ESG and financial performance of the firm. It has used the theories of stakeholders, shareholders and climate change as the basis for this model. The research makes use of secondary data in the form of large databases with ESG ratings and financial performance data. The study employed mixed method approach for gathering and analysis to help understand the research problem under consideration. The quantitative component of the study is defined by the use of secondary data collected from reliable databases such as Bloomberg, S&P Global, and Refinitive Eikon. These data sources contain information on ESG scores, and financial performance measures like ROE and Interest Rates applicable to a large number of publicly listed firms. The sample for this research was limited to large international organizations with a public presence in the market and part of the S&P 500 index as of 2024. The S&P 500 Index was selected due to its diversified framework across most industries and sectors to capture the general structure and nature of the organizations within the United States economy and globally. OLS Regression was done using SPSS. The findings of the study show that ESG scores, interest rates, and company assets were significantly related to ROE in this dataset. The ESG Score has a positive effect on ROE indicating that higher ESG scores are associated with higher ROE, suggesting potential financial benefits of sustainable practices. Moreover, through OLS Regression model, Interest Rate has a negative association with ROE implying that higher borrowing costs can reduce profitability. Interest rate is significant and positively correlated in short term and significant and negatively correlated in long term.