Environmental-Social-Governance performance and corporate risk: Empirical evidence from Vietnamese listed firms

Abstract

This study examines the impact of Environmental-Social-Governance (ESG) performance on the risk mitigation of listed companies in the context of a highly internationally integrated economy undergoing a green transition such as Vietnam. Using a dataset of ESG scores that measure corporate sustainability practices, the study analyzes the effect of ESG on the overall risk of 200 listed firms included in the VNX-Allshare Index during the period 2018 - 2023. Regression results show that ESG is significantly and negatively correlated with corporate risk, which is measured by operational risk and stock investment risk. These findings suggest that firms with higher ESG performance are more resilient to external shocks and exhibit lower operational risks. The study recommends that investors incorporate ESG into asset valuation models, regulators develop a transparent ESG disclosure framework suited to Vietnam’s market conditions, and enterprises prioritize ESG initiatives to strengthen their risk resilience and benefit from the risk-mitigating effects of ESG on both operational and market-related risks.