Title: The ESG-Performance Nexus in Emerging Markets: Unraveling Investor Behavioral Dynamics and Financial Returns Paradox in Vietnam's Capital Markets
Authors: Viet Hung NGUYEN
Volume: 9
Issue: 6
Pages: 372-381
Publication Date: 2025/06/28
Abstract:
The integration of Environmental, Social, and Governance (ESG) considerations into investment decision-making processes represents a paradigmatic shift in contemporary financial markets, particularly within emerging economies where institutional frameworks remain in developmental phases. This research investigates the complex relationship between ESG investment strategies and financial performance outcomes in Vietnam's rapidly evolving capital markets, examining the behavioral mechanisms that influence institutional investor decision-making processes. Employing a quantitative methodology encompassing structural equation modeling through partial least squares (PLS-SEM) analysis, this study examines survey data from 387 institutional investors operating within Vietnam's financial ecosystem. The empirical findings reveal a nuanced relationship between ESG integration and financial returns, moderated by investor behavioral characteristics including risk perception, social identity, and institutional pressures. The results demonstrate that while ESG-focused investments exhibit marginally lower short-term returns, they generate superior risk-adjusted performance over extended time horizons. Furthermore, the analysis uncovers significant heterogeneity in investor responses, with foreign institutional investors demonstrating greater ESG commitment compared to domestic counterparts. The research contributes to the emerging literature on sustainable finance in developing markets by providing empirical evidence of the ESG-performance paradox and its behavioral determinants. The findings offer strategic insights for policymakers seeking to enhance sustainable finance frameworks whilst supporting capital market development in emerging economies.