HomeSMN Digestvol. 8 no. 1 (2022)

The Effect of Environmental, Social, and Governance (ESG) Ratings on Financial Performance during Voluntary and Compliance Reporting Periods: The Philippine Experience

Lota Kristine S Nable | Nogin C. Bunda

Discipline: Finance



The companies’ performance on its environmental, social, and governance (ESG) issues has garnered increasing attention in the past decade globally. In the Philippines, ESG reporting has not yet been mandated by law. However, in 2019 a Securities and Exchange Commission Memorandum was released requiring the publicly listed companies to comply with the SEC guidelines or explain their non-compliance. This will be mandated three years after its release. This paper serves as a starting point to see the effect of ESG ratings on the financial performance of companies. It can provide a preview of how local companies perceive the importance of ESG ratings and the effect during the pre-mandatory period. As seen in other countries, ESG investment strategies help manage investment risks, derive reputational benefits, improve financial returns, provide a good image for investors and they see it as a fiduciary duty. This paper is an empirical-causal study that focuses on the voluntary and compliance periods prior to mandatory sustainability disclosure next year. It will only include publicly listed companies from Refinitiv Eikon. Results show that ESG ratings have no significant effect on the firms’ financial performance during the voluntary and compliance periods. However, when control variables were added, it was seen that the model was significant and there was a positive effect on the intercept. In terms of the voluntary and compliance periods, results show that there is a significant difference, however, there is still no effect of ESG ratings on ROA and stock returns.


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