Article Sidebar

Submitted
July 30, 2025
Accepted
September 24, 2025
Published
February 2, 2026
Download
Full text PDF
Statistic
Read Counter : 70 Download : 22

Downloads

Download data is not yet available.

Main Article Content

Abstract

This research investigates the moderating role of environmental, social, and governance (ESG) risk ratings in the relationship between traditional Fama-French framework and excess stock returns among companies listed in the ESG Leaders Index for the 2021–2023 period. Using moderated regression analysis (MRA), the findings reveal that small minus big (SMB) exerts a significant positive impact on excess returns, confirming the relevance of firm size as a pricing factor even within the sustainability-focused investment universe. Meanwhile, market risk and high minus low (HML) do not show demonstrate statistical relevance direct effects, although HML is marginally significant. Furthermore, ESG risk rating demonstrates a moderating effect only in the relationship between HML and excess returns, suggesting that sustainability considerations may weaken the traditional value premium. These results highlight the partial integration of ESG risk into asset pricing dynamics and underline the essentiality of incorporating ESG factors in developing more robust, sustainable investment strategies. The study provides practical insights for market participants, fund managers, and authorities navigating the transition toward sustainable finance in emerging markets.

Keywords

Asset pricing Fama-French model Investment Portfolio Sustainability

Article Details

License

Copyright (c) 2025 Yasir Maulana, Nugraha Nugraha, Disman Disman, Maya Sari

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
How to Cite
Maulana, Y., Nugraha, N., Disman, D., & Sari, M. (2026). Does sustainability strengthen asset pricing models? Moderating effects in the Fama-French framework on ESG leaders. Asian Management and Business Review, 6(1), 155–168. https://doi.org/10.20885/AMBR.vol6.iss1.art10
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Asih, K. N., Achsani, N. A., Novianti, T., & Manurung, A. H. (2024). The role of ESG-based assets in generating the dynamic optimal portfolio in Indonesia. Cogent Business and Management, 11(1), 2382919. https://doi.org/10.1080/23311975.2024.2382919 DOI: https://doi.org/10.1080/23311975.2024.2382919
  2. Avramov, D., Cheng, S., Lioui, A., & Tarelli, A. (2022). Sustainable investing with ESG rating uncertainty. Journal of Financial Economics, 145(2), 642–664. https://doi.org/10.1016/j.jfineco.2021.09.009 DOI: https://doi.org/10.1016/j.jfineco.2021.09.009
  3. Bang, J., Ryu, D., & Webb, R. I. (2023). ESG controversy as a potential asset-pricing factor. Finance Research Letters, 58, 104315. https://doi.org/10.1016/j.frl.2023.104315 DOI: https://doi.org/10.1016/j.frl.2023.104315
  4. Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173. https://psycnet.apa.org/doi/10.1037/0022-3514.51.6.1173 DOI: https://doi.org/10.1037//0022-3514.51.6.1173
  5. Bax, K., Broccardo, E., & Paterlini, S. (2024). Environmental, social, and governance factor and financial returns: what is the relationship? Investigating environmental, social, and governance factor models. Current Opinion in Environmental Sustainability, 66, 101398. https://doi.org/10.1016/j.cosust.2023.101398 DOI: https://doi.org/10.1016/j.cosust.2023.101398
  6. Berk, I., Guidolin, M., & Magnani, M. (2023). New ESG rating drivers in the cross-section of European stock returns. Journal of Financial Research, 46(S1), S133–S162. https://doi.org/10.1111/jfir.12356 DOI: https://doi.org/10.1111/jfir.12356
  7. Cesarone, F., Martino, M. L., Ricca, F., & Scozzari, A. (2024). Managing ESG ratings disagreement in sustainable portfolio selection. Computers & Operations Research, 170, 106766. https://doi.org/10.1016/j.cor.2024.106766 DOI: https://doi.org/10.1016/j.cor.2024.106766
  8. Cosimato, S., Cucari, N., & Landi, G. (2021). Environmental, Social, and Governance Integration in Asset Management Strategy: The Case of Candriam. In La Torre, M., & Chiappini, H. (Eds.), Contemporary Issues in Sustainable Finance: Financial Products and Financial Institutions (pp. 135-166). Cham: Springer International Publishing. https://doi.org/10.1007/978-3-030-65133-6_6 DOI: https://doi.org/10.1007/978-3-030-65133-6_6
  9. Dash, G., Kajiji, N., & Kamdem, B. G. (2024). Asset returns: reimagining generative ESG indexes and market interconnectedness. Journal of Risk and Financial Management, 17(10), 463. https://doi.org/10.3390/jrfm17100463 DOI: https://doi.org/10.3390/jrfm17100463
  10. De Giuli, M. E., Grechi, D., & Tanda, A. (2024). What do we know about ESG and risk? a systematic and bibliometric review. Corporate Social Responsibility and Environmental Management, 31(2), 1096–1108. https://doi.org/10.1002/csr.2624 DOI: https://doi.org/10.1002/csr.2624
  11. Debnath, P., & Chellasamy, P. (2024). Environmental, social and governance (ESG) and financial performance: a bibliometric analysis using biblioshiny. International Journal of Finance, Economics and Business, 3(1), 36-52. https://doi.org/10.56225/ijfeb.v3i1.284 DOI: https://doi.org/10.56225/ijfeb.v3i1.284
  12. Dobrick, J., Klein, C., & Zwergel, B. (2025). ESG as risk factor. Journal of Asset Management, 26(1), 44-70. https://doi.org/10.1057/s41260-024-00382-z DOI: https://doi.org/10.1057/s41260-024-00382-z
  13. Dong, G. N. (2025). The Systemic Risk of ESG Investment. Handbook of Sustainable Finance: Research and Applications, Forthcoming. https://doi.org/10.2139/ssrn.5110773 DOI: https://doi.org/10.1007/978-3-031-98736-6_19
  14. Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549-560. https://doi.org/10.1162/003465398557825 DOI: https://doi.org/10.1162/003465398557825
  15. Dsouza, S., K, K., Kayani, U., Nawaz, F., & Hasan, F. (2025). Sustainable investing: ESG effectiveness and market value in OECD regions. Cogent Economics & Finance, 13(1), 2445147. https://doi.org/10.1080/23322039.2024.2445147 DOI: https://doi.org/10.1080/23322039.2024.2445147
  16. Eugene, F., & French, K. (1992). The cross-section of expected stock returns. Journal of Finance, 47(2), 427-465. DOI: https://doi.org/10.1111/j.1540-6261.1992.tb04398.x
  17. Fama, E. F., & French, K. R. (2018). Choosing factors. Journal of Financial Economics, 128(2), 234-252. https://doi.org/10.1016/j.jfineco.2018.02.012 DOI: https://doi.org/10.1016/j.jfineco.2018.02.012
  18. Gavrilakis, N., & Floros, C. (2024). Volatility and herding bias on ESG leaders’ portfolios performance. Journal of Risk and Financial Management, 17(2), 77. https://doi.org/10.3390/jrfm17020077 DOI: https://doi.org/10.3390/jrfm17020077
  19. Geczy, C. C., & Guerard Jr, J. B. (2023). ESG and expected returns on equities. Pension Funds and Sustainable Investment, 105. https://doi.org/10.1093/oso/9780192889195.003.0005 DOI: https://doi.org/10.1093/oso/9780192889195.003.0005
  20. Gidage, M., Bhide, S., Pahurkar, R., & Kolte, A. (2024). ESG performance and systemic risk nexus: role of firm-specific factors in Indian companies. Journal of Risk and Financial Management, 17(9), 381. https://doi.org/10.3390/jrfm17090381 DOI: https://doi.org/10.3390/jrfm17090381
  21. Gong, X., Xie, F., Zhou, Z., & Zhang, C. (2024). The enhanced benefits of ESG in portfolios: a multi-factor model perspective based on LightGBM. Pacific-Basin Finance Journal, 85, 102365. https://doi.org/10.1016/j.pacfin.2024.102365 DOI: https://doi.org/10.1016/j.pacfin.2024.102365
  22. Heinelt, A., Strube, D., & Daase, C. (2025). Do ESG ratings drive financial performance? a systematic analysis of trends and challenges. International Conference on Finance, Economics, Management and ITBusiness (FEMIB 2025), Femib, 203–208. https://doi.org/10.5220/0013358400003956 DOI: https://doi.org/10.5220/0013358400003956
  23. Khan, M. A., Hassan, M. K., Maraghini, M. P., Paolo, B., & Valentinuz, G. (2024). Valuation effect of ESG and its impact on capital structure: evidence from Europe. International Review of Economics & Finance, 91, 19-35. https://doi.org/10.1016/j.iref.2024.01.002 DOI: https://doi.org/10.1016/j.iref.2024.01.002
  24. Kumar, R. (2019). ESG: alpha or duty?. The Journal of Index Investing, 9(4), 58-66. https://doi.org/10.3905/JII.2019.1.066 DOI: https://doi.org/10.3905/jii.2019.1.066
  25. Lu, J. (2025, July). Examination of the enhanced Fama-French three-factor model approach based on ESG individual data. In 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025) (pp. 533-541). Atlantis Press. https://doi.org/10.2991/978-94-6463-748-9_60 DOI: https://doi.org/10.2991/978-94-6463-748-9_60
  26. Luo, D. (2022). ESG, liquidity, and stock returns. Journal of International Financial Markets, Institutions and Money, 78, 101526. https://doi.org/10.1016/j.intfin.2022.101526 DOI: https://doi.org/10.1016/j.intfin.2022.101526
  27. Luo, D., & Farag, H. (2024). ESG and aggregate disagreement. Journal of International Financial Markets, Institutions and Money, 92(March 2023), 101972. https://doi.org/10.1016/j.intfin.2024.101972 DOI: https://doi.org/10.1016/j.intfin.2024.101972
  28. Ma, M., Liu, M., Liu, M., Xing, H., Wang, Y., & Meng, F. (2024). Spatiotemporal patterns and quantitative analysis of factors influencing surface ozone over East China. Sustainability (Switzerland), 16(1), 16010123. https://doi.org/10.3390/su16010123 DOI: https://doi.org/10.3390/su16010123
  29. Magnani, M., Guidolin, M., & Berk, I. (2024). Strong vs. stable: the impact of ESG ratings momentum and their volatility on the cost of equity capital. Journal of Asset Management, 25(7), 666-699. https://doi.org/10.1057/s41260-024-00377-w DOI: https://doi.org/10.1057/s41260-024-00377-w
  30. Maurer, R. (2022). Price levels in the European Monetary Union: even tradables follow independent random walks. Journal of International Financial Markets, Institutions and Money, 81, 1–36. https://doi.org/10.1016/j.intfin.2022.101654 DOI: https://doi.org/10.1016/j.intfin.2022.101654
  31. Melas, D., Nagy, Z., & Kulkarni, P. (2017). Factor investing and ESG integration. In Jurczenko, E. (Ed.), Factor Investing: From Traditional to Alternative Risk Premia (pp. 389-413). Elsevier. https://doi.org/10.1016/B978-1-78548-201-4.50015-5 DOI: https://doi.org/10.1016/B978-1-78548-201-4.50015-5
  32. Mohanasundaram, S., & Kasilingam, R. (2024). The sustainability factor in asset pricing: empirical evidence from the Indian market. The Quarterly Review of Economics and Finance, 94, 206-213. https://doi.org/10.1016/j.qref.2024.01.004 DOI: https://doi.org/10.1016/j.qref.2024.01.004
  33. Morri, G., Dipierri, A., & Colantoni, F. (2024). ESG dynamics in real estate: temporal patterns and financial implications for REITs returns. Journal of European Real Estate Research, 17(2), 263–285. https://doi.org/10.1108/JERER-01-2024-0005 DOI: https://doi.org/10.1108/JERER-01-2024-0005
  34. MSCI. (2024). The Evolution of ESG Investing. Retrieved from https://www.Msci.Com/Esg-101-What-Is-Esg/Evolution-of-Esg-Investing.
  35. Mulialim, C., & Madyan, M. (2023). How does ESG explain excess returns in emerging market? an asset-pricing approach. Jurnal Manajemen Teori dan Terapan, 16(2). https://doi.org/10.20473/jmtt.v16i2.48072 DOI: https://doi.org/10.20473/jmtt.v16i2.48072
  36. Muñoz, F., Vargas, M., & Vicente, R. (2021). Style-changing behaviour in the socially responsible mutual fund industry: consequences on financial and sustainable performance. Sustainability Accounting, Management and Policy Journal, 12(5), 1027–1051. https://doi.org/10.1108/SAMPJ-03-2020-0084 DOI: https://doi.org/10.1108/SAMPJ-03-2020-0084
  37. Naffa, H., & Fain, M. (2022). A factor approach to the performance of ESG leaders and laggards. Finance Research Letters, 44(December 2020), 102073. https://doi.org/10.1016/j.frl.2021.102073 DOI: https://doi.org/10.1016/j.frl.2021.102073
  38. Nsibande, L. M., & Sebastian, A. (2023). Is the environmental, social and corporate governance score the missing factor in the Fama-French five-factor model?. South African Journal of Economic and Management Sciences, 26(1), 4835. https://doi.org/10.4102/sajems.v26i1.4835 DOI: https://doi.org/10.4102/sajems.v26i1.4835
  39. Pástor, Ľ., Stambaugh, R. F., & Taylor, L. A. (2021). Sustainable investing in equilibrium. Journal of Financial Economics, 142(2), 550-571. https://doi.org/10.1016/j.jfineco.2020.12.011 DOI: https://doi.org/10.1016/j.jfineco.2020.12.011
  40. Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: the ESG-efficient frontier. Journal of Financial Economics, 142(2), 572-597. https://doi.org/10.1016/j.jfineco.2020.11.001 DOI: https://doi.org/10.1016/j.jfineco.2020.11.001
  41. Postiglione, M., Carini, C., & Falini, A. (2024). ESG and firm value: a hybrid literature review on cost of capital implications from Scopus database. Corporate Social Responsibility and Environmental Management, 31(6), 6457–6480. https://doi.org/10.1002/csr.2940 DOI: https://doi.org/10.1002/csr.2940
  42. Resende, M., Carvalho, C., & Carmo, C. (2024). Impacts of the expected credit loss model on pro-cyclicality, earnings management, and equity management in the Portuguese banking sector. Journal of Risk and Financial Management, 17(3), 112. https://doi.org/10.3390/jrfm17030112 DOI: https://doi.org/10.3390/jrfm17030112
  43. Rosinus, M., & Lansky, J. (2025). Predictive power of ESG factors for DAX ESG 50 index forecasting using multivariate LSTM. International Journal of Financial Studies, 13(3), 167. https://doi.org/10.3390/ijfs13030167 DOI: https://doi.org/10.3390/ijfs13030167
  44. Sahin, Ö., Bax, K., Czado, C., & Paterlini, S. (2022). Environmental, social, governance scores and the missing pillar—why does missing information matter? Corporate Social Responsibility and Environmental Management, 29(5), 1782–1798. https://doi.org/10.1002/csr.2326 DOI: https://doi.org/10.1002/csr.2326
  45. Silva-Noreña, R., Gavira-Durón, N., & Alonso-Rivera, A. (2024). Extensión del modelo de tres factores de Fama y French, rendimientos de mercado y sustentabilidad corporativa. Revista Mexicana de Economía y Finanzas, 19(4). https://doi.org/10.21919/remef.v19i4.1074 DOI: https://doi.org/10.21919/remef.v19i4.1074
  46. Wang, H., Jiao, S., Ge, C., & Sun, G. (2024). Corporate ESG rating divergence and excess stock returns. Energy Economics, 129, 107276. https://doi.org/https://doi.org/10.1016/j.eneco.2023.107276 DOI: https://doi.org/10.1016/j.eneco.2023.107276
  47. Yunus, Y. A., & Nanda, S. (2024). Exploring sustainable finance: a qualitative inquiry into responsible investment and ESG risk evaluation. Golden Ratio of Finance Management, 4(1), 01-13. https://doi.org/10.52970/grfm.v4i1.429 DOI: https://doi.org/10.52970/grfm.v4i1.429
  48. Zeng, Q., Xu, Y., Hao, M., & Gao, M. (2025). ESG rating disagreement, volatility, and stock returns. Finance Research Letters, 72, 106602. https://doi.org/https://doi.org/10.1016/j.frl.2024.106602 DOI: https://doi.org/10.1016/j.frl.2024.106602
  49. Zheng, Y., Wang, B., Sun, X., & Li, X. (2022). ESG performance and corporate value: analysis from the stakeholders’ perspective. Frontiers in Environmental Science, 10(December), 1–16. https://doi.org/10.3389/fenvs.2022.1084632 DOI: https://doi.org/10.3389/fenvs.2022.1084632