Herding Behavior, ESG Disclosure, and Financial Performance: Rethinking Sustainability Reporting to Address Climate-Related Risks in ASEAN Firms

This study examines the intersection of environmental, social, and governance (ESG) disclosure—operationalized through sustainability reporting—corporate financial performance, and the behavioral dynamics of herding in capital structure decisions among non-financial firms in five ASEAN countries. As ESG and sustainability finance gain prominence in addressing climate change and climate risk, understanding the behavioral factors that influence ESG adoption is crucial. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) and Multigroup Analysis (MGA), this research finds that while sustainability reporting enhances return on assets (ROA) and Tobin’s Q, it does not significantly influence net profit margin (NPM). The findings also confirm that herding behavior—where companies mimic the financial structures of peers—moderates the link between sustainability reporting and performance outcomes, with leader firms gaining more from transparency efforts. This highlights the double-edged nature of herding: while it can accelerate ESG adoption, it may dilute the strategic depth of climate action if firms merely follow rather than lead. The study provides actionable insights for regulators and corporate strategists seeking to strengthen ESG finance as a driver for climate resilience and long-term stakeholder value.