The Moderating Effect of ESG Controversies on the Relationship Between CSR Committee and ESG Performance: Malaysian Evidence

Abstract

Environmental, social, and governance (ESG) controversies reflect the responsibility to which corporate social responsibility (CSR) committees within firms act with genuine intentions. With the continuous development of ESG practices and the increasing number of environmental and social controversies in the Malaysian corporate environment, this study examines whether ESG controversies (ESGCON) influence the relationship between CSR committees and ESG performance among publicly listed firms in Malaysia. Additionally, the reformation of corporate governance in Malaysia has led to a growing establishment of CSR committees, providing valuable insights into the governance mechanism's impact on ESG practices in emerging markets. A quantile regression was applied to a dataset comprising 944 firms in Malaysia from 2016 to 2023. ESG scores, CSR committee data, and ESG controversy scores were extracted from the Refinitiv Eikon database to investigate the impact of ESGCON on the relationship between CSR committees and ESG performance. This study demonstrated that firms with CSR committees contribute to a strong favorable linkage with ESG performance. However, ESGCON does not exhibit a moderating effect on this relationship, although they are negatively correlated with both ESG performance and CSR committees. Moreover, firm size and GDP were found to positively and significantly influence ESG performance, while leverage displayed a complex and mixed effect. To date, no study has been done regarding the effect of ESGCON on the relationship between CSR committees and ESG performance in the Malaysian context. Hence, this study raises awareness among policymakers, practitioners, and academicians on the importance of considering ESGCON when developing policies, business strategies, and ESG initiatives. The findings also offer guidance for publicly listed firms in Malaysia to strengthen their sustainability efforts and enhance corporate governance structures to mitigate adverse effects of the risk associated with ESGCON.