Determinants of corporate sustainability: Analyzing governance, financial capacity, and state ownership as drivers of ESG performance in Malaysia

Abstract

The paper explores the fundamental structural drivers of environmental, social, and governance (ESG) performance within leading blue-chip companies on the FTSE Bursa Malaysia KLCI. Among evolving regulatory standards, such as the National Sustainability Reporting Framework (NSRF) and the implementation of mandatory IFRS S1 and S2 disclosures, the study uses the composite ESG Score as its central dependent variable. Grounded in stakeholder, legitimacy, resource dependency, and agency theories, the research assesses how internal governance characteristics (board size, independence, and gender diversity) and financial capacity metrics (firm size, profitability, and leverage) influence ESG outcomes. State ownership is examined as a key moderator in the relationship between corporate governance and ESG performance to account for Malaysia's distinct market structure. Employing a multi-year, archival panel data methodology, the study aligns institutional ESG ratings with audited financial records. The paper leads the academic focus in emerging markets away from the financial impacts of ESG activities, emphasizing instead the foundational structural factors that drive ESG engagement in the first place.