Sustainability and governance are reshaping corporate value
Energy companies operate at the center of the global transition toward cleaner and more sustainable economic systems. Governments are tightening environmental regulations, investors are paying closer attention to ESG performance, and financial markets are adjusting risk assessments accordingly. In this environment, companies that integrate sustainable finance and transparent governance may gain stronger market confidence.
The Indonesian energy sector reflects this shift. Fossil-fuel-based firms face growing scrutiny, while companies demonstrating sustainability commitments often attract more favorable investor sentiment. This context makes it important to understand whether environmental financing strategies and governance structures genuinely affect firm value rather than simply improving corporate image.
How the research was conducted
The research analyzed 11 energy companies listed on the Indonesia Stock Exchange over a five-year period, producing 72 firm-year observations. The authors relied on publicly available annual reports and sustainability reports to evaluate company performance and disclosure practices.
Firm value was measured through the price-to-book ratio, a common market indicator. Green finance was assessed through an index of sustainability-related financial disclosures, leverage through the debt-to-asset ratio, and profitability through net profit margin. Corporate governance was represented by institutional ownership, reflecting the strength of external monitoring.
The authors applied panel data regression analysis to test how these variables interact, allowing them to observe both direct effects and how governance moderates financial relationships.
Key findings from the study
The results highlight several patterns shaping investor perceptions of energy companies in Indonesia:
- Green finance shows a positive and significant effect on firm value.
- Higher leverage reduces firm value, indicating investor concern about financial risk.
- Profitability does not significantly influence firm value in this sector.
- Strong corporate governance increases firm value.
- Governance weakens the direct positive impact of green finance but strengthens the management of leverage risks.
- Governance does not significantly alter the relationship between profitability and firm value.
Together, these variables explain around 83 percent of the variation in firm value across the companies studied, indicating that sustainability strategies and governance structures are central to market evaluation.
Why governance matters as much as sustainability
The research suggests that investors interpret green finance as a signal of long-term readiness. Companies investing in environmentally responsible projects demonstrate adaptation to regulatory pressure and climate-related risks, which can strengthen confidence in their future stability.
However, governance acts as a filtering mechanism. Strong institutional oversight makes investors more cautious in assessing sustainability initiatives. Instead of responding to environmental claims alone, markets consider whether such investments are strategically managed and financially justified.
As the authors from Universitas Mercu Buana note, corporate governance ensures that sustainability initiatives are executed responsibly and aligned with shareholder interests, preventing inefficient spending disguised as environmental commitment. This insight supports agency theory, which argues that governance mechanisms reduce conflicts between management and investors.
Debt risk remains a major concern
The study also shows that leverage plays a crucial role in shaping investor perceptions. High debt levels increase financial obligations and reduce flexibility, particularly in capital-intensive industries such as energy.
Even though debt can provide tax advantages and additional capital, investors appear to prioritize stability over aggressive expansion financed by borrowing. Strong governance, however, can mitigate some of these concerns by demonstrating disciplined financial oversight and risk management.
Profitability is not always the deciding factor
One of the more striking findings is that profitability does not significantly affect firm value in this context. The authors explain that energy company profits often fluctuate due to external factors such as commodity prices and global demand.
As a result, investors may place greater emphasis on strategic direction, sustainability readiness, and governance quality rather than short-term earnings performance. This suggests a broader shift in how corporate value is assessed in industries undergoing structural transformation.
Implications for business, investors, and policy
For energy companies, the findings reinforce that sustainability financing strategies can improve market valuation, but only when supported by transparent governance and careful financial management.
For investors, the research highlights the importance of evaluating governance strength and sustainability disclosure rather than relying solely on profit indicators.
For policymakers, the results support regulations encouraging sustainable finance frameworks while simultaneously strengthening corporate governance standards. Such policies may improve market stability and accelerate the transition toward cleaner energy systems.
Academic insight from the authors
Ainal Mardhiah of Universitas Mercu Buana emphasizes that sustainability financing must be integrated into corporate strategy rather than treated as a symbolic initiative. According to the authors, governance ensures that environmental investments contribute to long-term value creation rather than short-term reputation gains.
Author profiles
Ainal Mardhiah is a researcher in corporate finance and sustainability at Universitas Mercu Buana, Jakarta, focusing on financial policy, ESG strategy, and corporate value.
Asep Risman is a finance scholar at Universitas Mercu Buana specializing in investment analysis, corporate governance, and capital structure decisions.
0 Komentar