The Relationship Between Environmental, Social, And Governance Ratings And Financial Performance Of Manufacturing Firms In Vietnam

Abstract

According to Nobel laureate American economist Milton Friedman, the principal responsibility of a business is to optimize profits for its shareholders. Historically, most profit-driven firms disregarded the importance of social, environmental, and governance responsibilities. The main factor is that ESG responsibilities are seen as potentially onerous for financial performance since they are linked to cost escalations rather than being completely neutral. Nevertheless, during the last two decades, it has been evident that environmental, governance, and social issues significantly affect the financial sustainability of several companies, in addition to their profitability. Consequently, this resulted in the development of the asset allocation procedure. This research seeks to assess the relationship between Environmental, Social, and Governance (ESG) ratings and the financial indication of manufacturing enterprises in Vietnam over the period from 2019 to 2022. Furthermore, it assists firms in acknowledging the need of including the influence on other stakeholders and the environment, alongside the goal of maximizing shareholder value, to generate enduring value in the long run. The current research analyzed the ESG pillars of 150 manufacturing businesses situated in Vietnam listed on the Ho Chi Minh Stock Exchange and Hanoi Stock Exchange. The financial performance measures employed in this assessment were ROE and ROA