1 Chapter I Introduction I.1 Research Background The phenomenon of responsible investing first emerged in the United States back in the 1920s, when churches with assets to invest began applying faith-based criteria to exclude certain investments from their portfolios—businesses in the alcohol or tobacco industry, for example. In the post—World War II era, amid the rise of the civil rights and antiwar movements, activists turned to shareholder advocacy, a major form of SRI, to influence corporate behavior in a manner consistent with their environmental and social goals. Whether faith-based or linked to a social movement, such “responsible investment” was regarded as a niche investment category by mainstream investors, unique in that it placed ethical or moral considerations over financial returns. The tide began to turn in the 1990s, as ESG-related issues began attracting more and more attention. In the area of the environment, the 1990s witnessed such milestones as the Rio Earth Summit of 1992, the release of international standards for environmental management (ISO 14001) in 1996, and the adoption of the Kyoto Protocol in 1997. It was a time of growing environmental awareness worldwide, accompanied by the adoption of rules and regulations addressing a wide range of emerging environmental concerns, from toxic chemicals and recycling to climate change. In November—December 2015, the United Nations Framework Convention on Climate Change met in Paris for the twenty-first Conference of the Parties (COP 21) to set up an unused system for nursery gas decreases to succeed the Kyoto Convention. The result was the Paris Agreement, which recognizes the require for a reaction to the pressing danger of climate alter and commits the parties to measures to address that danger. The assertion sets the objective of zero net nursery gas outflows from human movement by the moment half of the century in order to hold the increment within the worldwide normal temperature to well underneath 2°C (and ideally underneath 1.5°C) over pre-industrial levels and ties all the parties to “undertake and communicate yearning efforts” toward that objective. More 2 particularly, it obligates each party to set targets for emanations lessening or impediment, actualize household measures to attain those targets, and yield information on its advance for worldwide audit and assessment. Unused targets are to be set each five a long time in understanding with worldwide conditions and results. The swell impact of this understanding can as of now be seen in activity by industry, neighborhood government, and the speculation community. A major illustration within the private division is RE100, a “collaborative worldwide activity of powerful businesses committed to 100% renewable energy.” Such worldwide organizations as IKEA, Nestle, Swiss Re, Philips, Microsoft, Goldman Sachs, Tata Engines, and Google have marked onto the activity. Subnational governments have committed themselves to fight climate alter at the nearby level beneath the Paris City Corridor Affirmation. Within the resource administration community, there's developing intrigued in contributing in renewable vitality and energy-efficient innovation and stripping from fossil fills. A few have indeed cautioned that fossil fuel reserves could gotten to be “stranded assets.” The contention here is that most of the known fossil fuel saves of vitality and mining companies is unusable, since the overall stock speaks to 2,795 gigatons of carbon dioxide outflows, while as it were 565 Gt can be radiated between presently and 2050 on the off chance that the worldwide temperature increment is to be kept underneath 2°C. (In any case, these “stranded assets” have however to appear up in budgetary reports or valuations.) In expansion, in December 2015 the Money related Solidness Board propelled an industry-led Errand Constrain on Climate-Related Monetary Revelations. The assignment constrain was planned to distribute a set of preparatory suggestions for open comment by the conclusion of 2016. As these illustrations affirm, a commitment to slicing carbon emanations is quick getting to be a prerequisite for running a major worldwide commerce. In response to climate change which has the potential to have a significant impact on several elements, particularly environmental issues (IPCC,2018). The Intergovernmental Panel on Climate Change cautioned that global warming temperatures could rise by 1.5 degrees Celsius above preindustrial levels in the next one or two decades (IPCC, 2018). We are witnessing the warmest temperatures in 3 recorded history, a threefold rise in sea levels, catastrophic global warming, and other irreversible climate change effects not seen in hundreds of thousands of years. That is why it is critical to developing an investment idea that is concerned not only with the profit element of the company but also with how to establish a sustainable, responsible investment. Increasing of investment from global investor and local investor on risk and return of stock market with particularly the environment, good corporate governance and non-financial factors put pressure on firms to increase their efforts and focus for financing non-financial aspect of the firm. Investors, employee, management, customers and government increasingly expect the firm to mitigate and report all of these factors effectively. Firms report their non-financial performance on the risky exposure broadly through three categories that is Environment, Social and Governance. The search for relationships between environmental, social, and governance (ESG) factors and business financial performance began in the 1970s (Friede, Busch, and Bassen,2015). Since then, approximately 2000 empirical investigations and reviews on this issue have been published. In their conclusion, the authors state that about ninety percent of these research discovered a nonnegative relationship between ESG criteria and corporate financial performance, hence validating the empirical significance of the ESG investing business case. The construction of their illustrious "Governance Index," was among the first to identify a significant relationship between shareholders' rights and a series of relevant performance indicators for corporations, such as firm value, profits, and sales growth (Gompers, Ishii, and Metrick, 2003). No longer after that research Klock et al. (2005) indicated that the Governance Index might account for the 34-basis point difference in debt financing costs between corporations with strong and weak antitakeover protections. Predictably, subsequent research has concentrated primarily on the equities side, with only a few considering the relevance of ESG in the cost of debt. Jang et al. (2022) indicated of the research show the higher ESG rating scores lower the cost of debt financing particularly for small firm issuers. 4 Therefore, by following previous research and rarely reference for research in ASEAN (Association of South East Asian Nations) - a regional intergovernmental organization comprises of ten countries in Southeast Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. As one of the largest emerging economies, ASEAN's economic outlook is positive if measured by its swift economic growth, but less so if it is pursued at the expense of environmental capital and social capital, which ultimately inhibit future development (ASEAN, 2019). In recent years, climate change has exacerbated the negative effects of unsustainable practices and consumption, which have increased the region's susceptibility to extreme weather events that wreak economic and social devastation (ADB, 2017; ASEAN, 2019). Several ESG practice are established to cast light on sustainable practices in the region in response to pressures from stakeholders, and there is an increase in companies' concerns over ESG issues (ASEAN ESG Network, 2018). In conclusion, ESG practices will continue to advance in ASEAN. Simultaneously, the corporate debt market continues to grow in importance in the global and ASEAN economies. OECD (2020) documents a sustained increase in corporate bond borrowing since 2008, equating to a global average annual issuance of USD1.8 trillion in corporate bonds, which is double the average annual issuance from 2000-2007. In the ASEAN region, the extent of the local currency bond market continues to expand in 2019, with quarterly growth of 2.3% and annual growth of 9.9%. (ADB, 2019). In the same year, the outstanding value of local currency bonds issued by ASEAN member states reached a total of $1.5 billion (ADB, 2019).