This study aims to examine the relationship between corporate governance (CG) quality, measured by a composite Corporate Governance Index (CGI), and Environmental, Social and Governance (ESG) performance across listed firms in 11 Asian economies. Given the growing importance of ESG adoption in emerging markets, this study further explores whether governance structures can serve as an effective mechanism to enhance sustainability performance.
Using firm-level data from the Refinitiv database spanning 2019–2023, this study constructs a CGI based on ten governance components. Using instrumental variable (IV) and quantile regression models, the analysis addresses endogeneity concerns and assesses the robustness of the CGI–ESG link across different levels of ESG performance. The study further disaggregates ESG into its E, S and G dimensions to identify where CG influence is most pronounced.
The results of this study show a strong and statistically significant positive relationship between CGI and ESG scores, particularly in the governance (G) performance, followed by the environmental (E) dimension. While environmental performance is also responsive to governance, it requires longer-term adjustments and capital investment, resulting in a comparatively smaller immediate effect on improved ESG performance. In addition, the social (S) pillar shows the weakest influence, especially when fixed effects are applied. This study also found that the impact of CGI is most obvious around the median ESG quantiles, suggesting that governance benefits a broad range of firms rather than just ESG winners or laggards. Therefore, the findings of this study support and extend agency theory and the resource-based view in the Asian context, suggesting that stronger governance structures not only reduce agency conflicts but also direct firm resources toward broader sustainability commitments. Furthermore, this study contributes to institutional theory by demonstrating that the CGI–ESG relationship holds across diverse regulatory and institutional environments within Asia.
The findings of this study suggest that strengthening governance mechanisms is a key decision for improving ESG performance in Asia. For investors, the composite CGI offers a more reliable governance signal for ESG screening than individual proxies, which tend to produce inconsistent results. For policymakers, the results underscore the importance of robust governance frameworks as a precondition for advancing corporate sustainability, particularly in markets where ESG adoption is still in its early stages. In addition, the comparatively weak influence of governance on the social (S) pillar suggests that ESG strategies cannot be uniformly applied across Asian markets and should be complemented by context-sensitive social policies that reflect the region’s institutional and cultural heterogeneity.
The results suggest that governance-led ESG does not immediately translate into social outcomes. While strong governance enhances board efficiency, transparency and formal social policies, tangible social performance for the stakeholders remains highly dependent on external institutional quality, such as labor regulation, regulatory enforcement and public–private collaboration.
This paper contributes to the ESG literature by offering one of the first multi-country Asian studies that combines a constructed CGI with each of the E, S and G dimensions. It also provides a robust framework based on IV regression and quantile estimations, highlighting governance as a driver of sustainability, particularly in emerging economies with diverse institutional and legal environments.
