Dissecting ESG Scores and Financial Performance in Explaining Stock Returns: Evidence from Thailand’s SET100

Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) scores and stock returns among publicly listed firms in Thailand's SET100 index across all major industry sectors, using data from the fiscal year 2023. The research aims to assess whether ESG performance, as rated by multiple providers, has explanatory power over stock return variations beyond traditional financial metrics. ESG ratings were collected from five widely used sources, SETESG, Morningstar Sustainalytics, ESGBook, Refinitiv, and S&P Global. Financial variables including return on equity (ROE), return on assets (ROA), price-to-earnings ratio (P/E), net profit, and dividend yield were also included. The study employed cross-sectional regression analysis and diagnostic tests for model validity.

The results reveal that ESG ratings show weak to moderate correlation with stock returns, and none of the ESG indicators were statistically significant at the 5% level in explaining return variations. In contrast, traditional financial metrics especially the P/E ratio and dividend yield, exhibited significant predictive power. The model passed standard diagnostic tests, confirming the absence of multicollinearity, heteroskedasticity, and autocorrelation issues.

These findings suggest that ESG information is not yet fully integrated into investment pricing in the Thai equity market. The results offer implications for investors, regulators, and listed firms by highlighting the continuing dominance of financial fundamentals and the need to enhance ESG transparency, comparability, and market awareness to strengthen ESG’s financial relevance in emerging markets.