The Influence of Environmental, Social and Governance (Esg) on Company Value with Corporate Innovation as an Intervening Variable

Ardianta Selasa, September 01, 2026
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FORMOSA NEWS

ESG Practices and Corporate Innovation Drive Higher Market Value for Indonesian Manufacturers

TAIPEI, Formosa News — Transparency in environmental and social responsibility is no longer just a passive addition to annual reports, but a primary driver of a company's market value. A new scientific study by three researchers at Sultan Ageng Tirtayasa University—Waode Dwi Wulandari, Windu Mulyasari, and Nurhayati Soleha—reveals that implementing Environmental, Social, and Governance (ESG) principles coupled with corporate innovation significantly boosts the firm value of manufacturing companies in Indonesia.

Published in the Indonesian Journal of Economic & Management Sciences (IJEMS) in 2026, the study analyzes financial data and corporate sustainability reports from manufacturing firms listed on the Indonesia Stock Exchange (IDX) between 2019 and 2022. The findings provide fresh empirical evidence for corporate leaders and investors navigating the rapid growth of sustainable investment across Southeast Asia.

Background: Resolving the Corporate ESG Debate

In recent years, global and domestic investors have placed increasing scrutiny on how companies manage their environmental footprint and social impacts. Growing concerns over climate risk and operational efficiency have led investors to favor businesses that prioritize long-term sustainability over short-term profits.

However, implementing ESG strategies has frequently sparked debate within executive boardrooms. Many business leaders have viewed green investments and social initiatives as burdensome expenses that drain capital and erode profitability. The research team at Sultan Ageng Tirtayasa University set out to test this assumption empirically, investigating whether ESG disclosures directly enhance market valuation and how corporate innovation acts as a bridge between sustainable practices and firm growth.

Simplified Methodology: Evaluating Real-World Market Data

The quantitative study examined a sample of 24 manufacturing companies listed on the Indonesia Stock Exchange that consistently released both annual financial reports and standalone sustainability reports from 2019 through 2022, generating 96 total firm-year observations.

To evaluate market valuation, the researchers utilized Tobin’s Q ratio—a standard financial metric that compares a company's market capitalization to the replacement cost of its total assets. ESG disclosures were measured across three core pillars: environmental, social, and governance disclosures. Using panel data regression and the Sobel test via EViews 12 statistical software, the team evaluated direct impacts as well as the mediating role of corporate innovation.

Key Research Findings

The empirical analysis yielded several critical insights into how sustainable operations impact corporate financial performance:

  • Combined ESG Disclosures Boost Value: Comprehensive ESG reporting has a overall positive and statistically significant impact on firm value. While short-term ESG investments increase initial operational expenditures, they yield greater financial efficiency and higher market valuations over time. For instance, PT Chandra Asri Petrochemical Tbk recorded an ESG disclosure score of 0.92 in 2022, which coincided with an elevated Tobin’s Q valuation of 3.46.
  • Corporate Innovation Acts as a Key Mediator: The study proves that corporate innovation successfully mediates the relationship between ESG disclosures and market value. Commitments to ESG force companies to innovate their internal processes and product lines, directly enhancing competitive advantage and investor appeal.
  • Environmental and Social Pillars Drive Financial Returns: When analyzed individually, both environmental and social disclosures positively influence firm value through corporate innovation. PT Merck Tbk achieved a perfect score of 1.00 in both environmental and social disclosures in 2021, mirroring a high Tobin’s Q valuation of 6.24 alongside a notable rise in employee engagement scores to 88 percent.
  • Governance Disclosures Show Limited Direct Impact: Unlike environmental and social metrics, governance disclosures alone showed no statistically significant direct positive impact on company valuation. This suggests that investors in emerging markets tend to prioritize tangible financial performance, green innovation, and social impacts over formal governance paperwork. For example, PT Austindo Nusantara Jaya Tbk held a maximum governance score of 1.00 in 2022, yet retained a low market valuation of 0.53.

Real-World Implications for Business and Policy

The insights from Sultan Ageng Tirtayasa University highlight a necessary mindset shift for executive leadership within manufacturing and industrial sectors. Capital expenditures dedicated to environmental protection and workforce welfare should not be treated as lost operational costs, but rather as strategic investments that spur product development and operational efficiencies.

For financial regulators and stock exchange authorities, the findings emphasize that mandatory ESG reporting frameworks should be paired with incentives for research and development (R&D). By leveraging ESG reporting, investors gain a reliable indicator of a company’s long-term innovative capacity and market resilience.

"lthough ESG investments may increase a company's financial burden in the short term, such investments improve long-term financial efficiency and corporate performance," noted the research team from Sultan Ageng Tirtayasa University.

Author Profiles

  1. Waode Dwi Wulandari, M.Ak. — Lead researcher and Master of Accounting candidate at the Faculty of Economics and Business, Sultan Ageng Tirtayasa University. Specializes in financial accounting, corporate sustainability, and ESG disclosure frameworks.
  2. Dr. Windu Mulyasari, S.E., M.Si. — Senior researcher and faculty member at Sultan Ageng Tirtayasa University, specializing in financial management, corporate governance, and firm valuation metrics.
  3. Dr. Nurhayati Soleha, S.E., M.Si. — Academic and researcher at Sultan Ageng Tirtayasa University with expertise in managerial accounting, corporate innovation strategies, and quantitative methodology.


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