IDEAS home Printed from https://ideas.repec.org/a/bas/econst/y2025i7p132-148.html

How Is Environmental, Social, and Governance Performance Scores Related to Financial Performance of Corporations in Indonesia

Author

Listed:
  • Nur Khusniyah Indrawati
  • Nuraini Desty Nurmasari
  • A Muhamad Jazuli

Abstract

The relationship between environmental, social, and governance (ESG) performance and financial performance (FP) has been widely debated, with prior studies yielding mixed outcomes. This research investigates the connection between ESG and FP in Indonesia during 2015–2021, examining aggregate and individual ESG dimensions. Additionally, it explores the moderating role of slack resources in the ESG-FP relationship. Using a sample of 32 Indonesian corporations consistently implementing ESG principles and attaining ESG ratings over five years, the study employs panel regression analysis through pooled OLS, fixed effects (FE), and random effects (RE) models. The findings reveal that aggregate ESG scores do not significantly impact FP. Environmental performance scores at the individual dimension level demonstrate a slightly negative relationship with FP. Furthermore, slack resources positively moderate the aggregate ESG-FP relationship. This study contributes to ESG literature by offering a dual-level examination (aggregate and individual) and integrating slack resources as a moderating variable. Despite the limited sample size, the findings provide valuable insights into the ESG-FP relationship in Indonesia. Future research should expand the dataset to include firms from diverse regions and industries to enhance the generalisability of results and offer a global perspective.

Suggested Citation

  • Nur Khusniyah Indrawati & Nuraini Desty Nurmasari & A Muhamad Jazuli, 2025. "How Is Environmental, Social, and Governance Performance Scores Related to Financial Performance of Corporations in Indonesia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 132-148.
    • Handle: RePEc:bas:econst:y:2025:i:7:p:132-148
    as

    Download full text from publisher

    File URL: http://archive.econ-studies.iki.bas.bg/2025/2025_07/2025_07_08.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Adriana Galant & Simon Cadez, 2017. "Corporate social responsibility and financial performance relationship: a review of measurement approaches," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 30(1), pages 676-693, January.
    2. Shahzad, Ali M. & Mousa, Fariss T. & Sharfman, Mark P., 2016. "The implications of slack heterogeneity for the slack-resources and corporate social performance relationship," Journal of Business Research, Elsevier, vol. 69(12), pages 5964-5971.
    3. Sachs,Jeffrey D. & Kroll,Christian & Lafortune,Guillame & Fuller,Grayson & Woelm,Finn, 2022. "Sustainable Development Report 2022," Cambridge Books, Cambridge University Press, number 9781009210034, January.
    4. Marcus Wagner, 2005. "How to reconcile environmental and economic performance to improve corporate sustainability: corporate environmental strategies in the European paper industry," Post-Print hal-00279158, HAL.
    5. repec:eme:par000:par-10-2016-0091 is not listed on IDEAS
    6. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 537-579.
    7. Rezaul Kabir & Hanh Minh Thai, 2017. "Does corporate governance shape the relationship between corporate social responsibility and financial performance?," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 29(2), pages 227-258, April.
    8. Birger Wernerfelt, 1984. "A resource‐based view of the firm," Strategic Management Journal, Wiley Blackwell, vol. 5(2), pages 171-180, April.
    9. Rajesh Kumar Bhaskaran & Irene Wei Kiong Ting & Sujit K. Sukumaran & Saraswathy Divakaran Sumod, 2020. "Environmental, social and governance initiatives and wealth creation for firms: An empirical examination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 710-729, July.
    10. Bouslah, Kais & Kryzanowski, Lawrence & M’Zali, Bouchra, 2013. "The impact of the dimensions of social performance on firm risk," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1258-1273.
    11. Amir Barnea & Amir Rubin, 2010. "Corporate Social Responsibility as a Conflict Between Shareholders," Journal of Business Ethics, Springer, vol. 97(1), pages 71-86, November.
    12. Sachs,Jeffrey D. & Kroll,Christian & Lafortune,Guillame & Fuller,Grayson & Woelm,Finn, 2022. "Sustainable Development Report 2022," Cambridge Books, Cambridge University Press, number 9781009210089, January.
    13. Rao, Amar & Dagar, Vishal & Sohag, Kazi & Dagher, Leila & Tanin, Tauhidul Islam, 2023. "Good for the planet, good for the wallet: The ESG impact on financial performance in India," Finance Research Letters, Elsevier, vol. 56(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohammed Benlemlih & Li Cai, 2020. "Corporate environmental performance and financing decisions," Post-Print hal-03124950, HAL.
    2. Tzouvanas, Panagiotis & Kizys, Renatas & Chatziantoniou, Ioannis & Sagitova, Roza, 2020. "Environmental and financial performance in the European manufacturing sector: An analysis of extreme tail dependency," The British Accounting Review, Elsevier, vol. 52(6).
    3. Shaista Wasiuzzaman & Ali Uyar & Cemil Kuzey & Abdullah S. Karaman, 2022. "Corporate social responsibility: Is it a matter of slack financial resources or strategy or both?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2444-2466, September.
    4. Adil Haniev & Viktoriya V. Suhih, 2025. "Analysis of the Impact of ESG Initiatives on the Financial Performance of Shareholders in Russian Companies," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 24(1), pages 319-343.
    5. Ana Noemí Gomez Vaca & Lucía Alexandra Popartan & Sergi Nuss-Girona & Ignasi Rodríguez-Roda, 2025. "Spatial approach for assessing vulnerability to urban flooding: a proposal for a multidimensional index," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 121(14), pages 16799-16825, August.
    6. Meles, Antonio & Salerno, Dario & Sampagnaro, Gabriele & Verdoliva, Vincenzo & Zhang, Jianing, 2023. "The influence of green innovation on default risk: Evidence from Europe," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 692-710.
    7. Chakraborty, Atreya & Gao, Lucia Silva & Sheikh, Shahbaz, 2019. "Managerial risk taking incentives, corporate social responsibility and firm risk," Journal of Economics and Business, Elsevier, vol. 101(C), pages 58-72.
    8. Champagne, Claudia & Coggins, Frank & Sodjahin, Amos, 2022. "Can extra-financial ratings serve as an indicator of ESG risk?," Global Finance Journal, Elsevier, vol. 54(C).
    9. Wang, Liu & Li, Shaomin, 2025. "Is corporate social responsibility a must or a plus? The role of national culture," International Review of Economics & Finance, Elsevier, vol. 101(C).
    10. Weipan Xu & Qiumeng Li & Yaofu Huang & Yu Gu & Xun Li, 2025. "Beyond surveys: high-resolution mapping of rural wealth in China using satellite and street view imagery," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-13, December.
    11. Kwame Adjei‐Mantey & Millicent O. Awuku & Ruby V. Kodom, 2023. "Revisiting the determinants of food security: Does regular remittance inflow play a role in Ghanaian households? A disaggregated analysis," Regional Science Policy & Practice, Wiley Blackwell, vol. 15(6), pages 1132-1146, August.
    12. Junuguru Srinivas & Naveen Kolloju & Akanksha Singh & Siriman Naveen & Sudhaveni Naresh, 2024. "The COVID-19 Pandemic and Its Impact on Sustainable Development Goals-2030," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 15485-15498, December.
    13. Su-In Kim & Hyejeong Shin & Heejeong Shin & Sorah Park, 2019. "Organizational Slack, Corporate Social Responsibility, Sustainability, and Integrated Reporting: Evidence from Korea," Sustainability, MDPI, vol. 11(16), pages 1-17, August.
    14. Yuanhui Wang & Changqing Song & Peichao Gao, 2024. "Quantification of systemic importance of SDGs in Asian‐African countries: A network hierarchy analysis," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(4), pages 3133-3146, August.
    15. Fareri, Silvia & Apreda, Riccardo & Mulas, Valentina & Alonso, Ruben, 2023. "The worker profiler: Assessing the digital skill gaps for enhancing energy efficiency in manufacturing," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    16. Abbas, Shujaat & Sinha, Avik & Saha, Tanaya & Shah, Muhammad Ibrahim, 2023. "Response of mineral market to renewable energy production in the USA: Where lies the sustainable energy future," Energy Policy, Elsevier, vol. 182(C).
    17. Markoulis, S. & Martzoukos, S. & Savvas, S. & Zagkreos, V., 2025. "A comprehensive analysis of the decline in the market-to-book ratio of European banks," International Review of Economics & Finance, Elsevier, vol. 100(C).
    18. Bai Xue & Zhuang Zhang & Pingli Li, 2020. "Corporate environmental performance, environmental management and firm risk," Business Strategy and the Environment, Wiley Blackwell, vol. 29(3), pages 1074-1096, March.
    19. Farah, Tazrina & Li, Jialong & Li, Zhicheng & Shamsuddin, Abul, 2021. "The non-linear effect of CSR on firms’ systematic risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    20. Milad Abdelnabi Salem & Fekri Shawtari & Hafezali Bin Iqbal Hussain & Mohd Farid Shamsudin, 2020. "Environmental technology and a multiple approach of competitiveness," Future Business Journal, Springer, vol. 6(1), pages 1-14, December.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bas:econst:y:2025:i:7:p:132-148. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Diana Dimitrova (email available below). General contact details of provider: https://edirc.repec.org/data/ikbasbg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.