Impact of ESG Engagement on Financial Stability in the Malaysian Manufacturing Sector: an Empirical Analysis

Wong, Sze Lee (2025) Impact of ESG Engagement on Financial Stability in the Malaysian Manufacturing Sector: an Empirical Analysis. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

The manufacturing industry is experiencing increasing interest in evaluating environmental performance, social responsibility, and corporate governance (ESG), as global discussions highlight the benefits of incorporating ESG-related policies. Consequently, significant relationships between ESG engagement and financial stability are anticipated. This study aims to analyse the impact of ESG engagement on financial stability within the manufacturing sector, including periods of economic uncertainty. A sample of 80 publicly listed manufacturing firms in Malaysia is selected for the period from 2021 to 2023, utilising regression analysis to investigate the relationship between ESG engagement and financial stability. Financial stability is measured using five key proxies tailored to the manufacturing industry: Debt-to-Equity Ratio, Current Ratio, Interest Coverage Ratio, Return on Assets (ROA), and Operating Cash Flow to Total Debt Ratio. The target variables in this study are the combined ESG score and the individual Environmental, Social, and Governance pillars. These variables quantify the extent of ESG engagement by each manufacturing firm and are sourced from the Refinitiv Eikon database, which provides standardized and reliable ESG metrics. By analyzing these target variables, the study aims to assess how overall ESG performance and the specific contributions of each ESG dimension influence the financial stability of Malaysian manufacturing firms. This study seeks to provide empirical evidence on whether ESG engagement significantly influences financial stability within the manufacturing sector. Additionally, it examines the relative impact of each ESG pillar to determine if certain aspects, such as environmental or social practices, are more influential than others. The findings are expected to offer valuable insights for manufacturing firms, investors, and policymakers in understanding the role of ESG practices in financial stability, particularly during periods of economic volatility. These insights will contribute to the existing literature by providing a sector-specific analysis of ESG's influence on financial stability, assisting manufacturing firms in strategic decision-making and enabling investors to make more informed ESG-related investment choices. Keywords: ESG engagement; Financial Stability; Manufacturing Industry; ESG; Malaysia