ANALYSIS OF THE EFFECT OF SUSTAINABILITY ON MANUFACTURING COMPANY’S FINANCIAL PERFORMANCE IN ASEAN-5 COUNTRIES

Abstract

Sustainability has been a debatable topic for decades, which is why this study is conducted. Initially, sustainability was used as a corrective action and was directly related to the issue of climate change due to industrialization, so the idea of a sustainable and environmentally friendly business emerged. The effect of sustainability on the company's financial performance needs to be highlighted to prove whether sustainability activities generate competitive advantages and benefit the company or whether these activities are costly for the company. This study aims to analyze the effect of sustainability on a company's financial performance. We use Environmental, Social, and Governance (ESG) scores from Thomson Reuters Datastream to represent sustainability. The sample used in this research consists of manufacturing companies throughout ASEAN-5 countries from 2016-2020. The result revealed a significant negative effect of ESG on financial performance if ROE and OPM measure it. Environmental alone does not significantly impact financial performance, social has a significant negative effect on ROA, ROE, and OPM, and governance has a negative impact on ROA.