THE ESG–PERFORMANCE NEXUS IN EMERGING MARKETS: UNPACKING INVESTOR BEHAVIOURAL PATTERNS AND FINANCIAL RETURN PARADOXES IN VIETNAM’S CAPITAL MARKETS

Abstract

The incorporation of Environmental, Social, and Governance (ESG) criteria into investment decision-making reflects a transformative shift in global financial markets, especially within emerging economies such as Vietnam where institutional and regulatory structures are still evolving. This study explores the intricate link between ESG-oriented investment strategies and financial performance in Vietnam’s dynamic capital markets, with a particular emphasis on the behavioural factors shaping institutional investors’ decisions. Using a quantitative research design and structural equation modelling via partial least squares (PLS-SEM), data were collected from 387 institutional investors actively engaged in Vietnam’s financial ecosystem. The findings reveal a multifaceted ESG–performance relationship influenced by behavioural attributes such as risk perception, social identity, and institutional pressures. Results indicate that while ESG-aligned investments may yield slightly lower short-term returns, they offer superior risk-adjusted outcomes over longer horizons. Moreover, the analysis highlights significant differences between domestic and foreign investors, with the latter demonstrating stronger commitment to ESG integration. This research adds to the growing body of literature on sustainable finance in developing markets by evidencing the ESG–performance paradox and its behavioural underpinnings. The insights generated provide practical implications for policymakers aiming to strengthen Vietnam’s sustainable finance infrastructure and support the broader development of its capital markets.