The principles of Environment, Social, and Governance (ESG) have increasingly become an integral part of corporate management, particularly as sustainability continues to gain prominence. In practice, however, ESG is not solely concerned with environmental and sustainability issues. It is also closely related to how companies manage risk in their decision-making processes.
In ASEAN, corporate governance continues to face various challenges. The implementation of ESG may encourage companies to adopt a more cautious approach to decision-making. This raises an important question: can ESG serve as a more effective risk mitigation mechanism for companies?
This issue was the focus of research conducted by Anggelia Syahputri, M.Sc., as part of her thesis in the Master of Science in Accounting Program at the Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM). Her study examined the relationship between ESG performance and corporate risk-taking and investigated whether institutional monitoring could alter it.
Previous studies exploring the relationship between corporate risk-taking and ESG have generally focused on single-country settings and have produced mixed findings. Studies by He et al. (2024) and Wu et al. (2025), for instance, found that higher ESG performance reduces corporate risk-taking. However, empirical findings have not always been consistent across different corporate governance environments. This raises an important question: Does ESG reduce corporate risk-taking, or does its effect vary depending on other monitoring mechanisms, such as institutional ownership?
Against this backdrop, Anggelia conducted her research from a broader regional perspective, focusing on ASEAN, a region characterized by cultural values that emphasize collectivism, harmony, and a more cautious approach to risk-taking.
“This research attempts to examine this phenomenon from a broader perspective by focusing on ASEAN countries and observing publicly listed companies in five ASEAN countries during the 2018–2024 period,” she explained during the 3 Minute Thesis program, titled Sustainability in ASEAN: Does ESG Performance Reduce Corporate Risk-Taking?
To measure corporate risk-taking, the study employed two indicators reflecting the extent of fluctuations in companies’ financial performance: earnings volatility and stock return volatility. The findings show that companies with higher ESG performance tend to engage in less aggressive risk-taking. This is reflected in the lower volatility of earnings and stock returns. However, this negative effect becomes weaker when companies have high levels of institutional ownership.
Interestingly, the heterogeneity analysis revealed that the negative effect of ESG on corporate risk-taking was significant only among companies with low institutional ownership, but not among those with high institutional ownership.
“This means that ESG functions as an alternative monitoring mechanism in environments where institutional monitoring is limited,” said Anggelia, who graduated in early 2026.
These findings offer several practical implications. For companies, the results can help inform the design of management incentive schemes that balance ESG performance with strategic risk-taking to support corporate growth. For investors, understanding these findings can help them assess whether a company’s ESG practices function effectively as a risk mitigation mechanism without excessively constraining innovation and productive risk-taking.
The full video of the 3 Minute Thesis program, titled Sustainability di ASEAN: Apakah kinerja ESG mengurangi pengambilan risiko perusahaan?, is available at ugm.id/PengaruhKinerjaESGTeradapPerusahaan.
Report: Najwa Anggi Namira
Editor: Kurnia Ekaptiningrum
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