The Mediating Effects of Green Investment and Tax Avoidance in Renewable Energy Companies within the ASEAN-5 Region

Abstract

This study aims to analyze the effect of the Environmental, Social, and Governance (ESG) Score on capital market performance, measured through stock return and trading volume activity, while considering the mediating roles of green investment and tax avoidance in renewable energy sector companies across the ASEAN-5. The study employs a quantitative method using panel data from sustainable energy companies listed on the capital markets of five Southeast Asian countries, Indonesia, Malaysia, Singapore, Thailand, and the Philippines. The research covers a five-year period from 2019 to 2023. Sample selection was conducted selectively using purposive sampling. To analyze the data, this study applies Structural Equation Modeling (SEM) with a focus on testing complex mediation effects. The ESG Score is measured using data from Refinitiv/MSCI, while green investment is assessed through the proportion of environmentally friendly investments. Tax avoidance is measured using the Effective Tax Rate (ETR) and the differences between commercial financial statements and tax reports (Book-Tax Differences). The empirical findings reveal a significant positive correlation between ESG Scores and both stock returns and trading volume activity. Green investment is found to partially mediate the relationship between ESG Score and capital market performance, whereas tax avoidance fully mediates the relationship. Cross-country comparative analysis shows varying effects of ESG Scores in each ASEAN-5 country, with Singapore demonstrating the strongest impact. The results of this study carry significant strategic implications, particularly for investors in designing sustainable investment strategies, and for policymakers in formulating comprehensive regulatory frameworks related to Environmental, Social, and Governance (ESG) practices and taxation mechanisms within the renewable energy industry.