The findings come as sustainability reporting gains momentum across Indonesia. Since the issuance of OJK Regulation No. 51/POJK.03/2017, publicly listed companies have been encouraged to integrate sustainability practices into their business strategies. Meanwhile, the Indonesia Stock Exchange (IDX) has introduced ESG-based investment indices, reflecting growing investor demand for companies that prioritize environmental responsibility, social commitment, and sound corporate governance. Despite these developments, evidence on whether ESG disclosure consistently improves financial performance in Indonesia has remained mixed.
To address this gap, Puput Puspitasari and Dr. Eni Wuryani analyzed 71 companies listed on the Indonesia Stock Exchange (IDX) between 2020 and 2024, producing 355 company-year observations after a rigorous data selection process. The researchers examined Bloomberg ESG Scores alongside Tobin's Q, a widely used market-based indicator that reflects investor expectations of a company's future value rather than simply its current profitability. Company size was also included to determine whether larger firms experience stronger financial benefits from ESG implementation.
The analysis uncovered several important findings demonstrating that ESG performance influences market valuation differently across its three pillars.
Key Findings
- Overall ESG disclosure positively improves company market value (β = +0.0074; p = 0.0025).
- The Environmental pillar has a positive and significant effect on financial performance (β = +0.0052; p = 0.0006).
- The Governance pillar also positively influences company value (β = +0.0067; p = 0.0099).
- The Social pillar shows a negative relationship with financial performance (β = −0.0057; p = 0.0328).
- Firm size strengthens the positive effect of overall ESG disclosure (β = +0.0057; p = 0.0003).
- Firm size has the strongest moderating effect on the Environmental pillar (β = +0.0033; p < 0.001).
- Firm size does not significantly influence the relationship between the Social or Governance pillars and financial performance.
One of the study's most notable findings is that environmental responsibility generates the strongest positive market response, particularly among larger companies. Investors appear to reward firms that actively manage environmental issues such as emissions, energy efficiency, waste reduction, and climate-related initiatives. These practices are increasingly viewed as indicators of lower regulatory risk and stronger long-term competitiveness.
Corporate governance also emerged as a significant driver of financial performance. Companies with transparent governance structures, accountable management, independent boards, and stronger shareholder protection tend to receive higher market valuations. According to the researchers, good governance reduces information asymmetry between companies and investors, ultimately strengthening investor confidence.
In contrast, the Social pillar produced an unexpected negative relationship with market value. The researchers explain that this result reflects Indonesia's regulatory environment, where many corporate social responsibility (CSR) activities are already mandatory under Company Law No. 40 of 2007. As a result, additional social spending may be perceived by investors as an immediate cost rather than a value-creating investment, especially when its long-term benefits are difficult to quantify. The study also notes that Bloomberg's Social Score measures the breadth of disclosure rather than the actual effectiveness of social programs, which may contribute to this outcome.
Another important contribution of the research is the role of company size. Larger firms possess greater financial resources, stronger organizational capabilities, and higher visibility among institutional investors. These advantages enable them to implement ESG initiatives more systematically and communicate their sustainability commitments more effectively. Consequently, ESG disclosure creates a stronger positive signal for investors in large companies than in smaller firms, particularly regarding environmental performance.
According to Puput Puspitasari and Dr. Eni Wuryani of State University of Surabaya, the findings reinforce Stakeholder Theory and Legitimacy Theory, suggesting that companies gain higher market valuations when they successfully address stakeholder expectations while maintaining legitimacy through transparent sustainability practices. The research also demonstrates that ESG should not be treated as a single concept because each pillar—Environmental, Social, and Governance—affects financial performance differently.
The study carries important implications for corporate leaders, investors, and policymakers. Business executives are encouraged to prioritize environmental management and governance quality as core elements of corporate strategy rather than viewing ESG merely as a compliance requirement. Investors can also use ESG information to identify companies with stronger long-term growth potential. For regulators, the findings support continued efforts to strengthen ESG disclosure standards while improving the quality and credibility of sustainability reporting in Indonesia.
The researchers acknowledge several limitations. The analysis relies exclusively on Bloomberg ESG Scores, focuses primarily on larger publicly listed companies, and measures financial performance only through Tobin's Q. Future research is expected to include small- and medium-sized firms, additional ESG rating providers, accounting-based financial indicators, and broader macroeconomic variables to provide a more comprehensive understanding of ESG's financial impact.
Author Profile
Puput Puspitasari is a researcher from the Faculty of Economics and Business, State University of Surabaya (Universitas Negeri Surabaya/UNESA). Her research interests include sustainability reporting, Environmental, Social, and Governance (ESG), corporate finance, and capital market studies.
Dr. Eni Wuryani is a lecturer and researcher at the Faculty of Economics and Business, State University of Surabaya (Universitas Negeri Surabaya/UNESA). Her expertise includes corporate finance, accounting, financial performance, corporate governance, and sustainable business management.
Research Source
Article Title: The Effect of Environmental, Social, and Governance on Financial Performance with Firm Size as a Moderating Variable in Companies Listed on the Indonesia Stock Exchange for the Period 2020–2024
Authors: Puput Puspitasari & Eni Wuryani
Journal: International Journal of Management and Business Intelligence (IJBMI), Vol. 4 No. 3, 2026, pp. 505–520.
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