Does ESG Performance Enhance Firm Value and Profitability? Evidence From an Emerging Market in The Context of The SDGs

Abstract

A successful company aligns the interests of its stakeholders to achieve long-term sustainability. The concept of Environmental, Social, and Governance (ESG) integrates non-financial factors into investment decisions, encouraging companies to be more accountable for their environmental and social impacts. Based on data from companies listed on the Indonesia Stock Exchange (IDX) during 2020-2024, ESG performance has increased significantly. However, this improvement was not accompanied by consistent growth in company value and profitability, which fluctuated and even declined in 2023-2024. This study aims to examine the effect of ESG performance on company value and profitability, which are key indicators for assessing corporate performance from the perspectives of investors and management. Using a quantitative approach with a causality design, this research analyzes 87 companies selected through purposive sampling. Panel data regression with a random effect model is applied. The results show that ESG performance and its pillars simultaneously have a positive and significant effect on company value and profitability. ESG scores have a negative and significant effect, while environmental, social, and governance dimensions show mixed and insignificant effects in partially.