Environment, Social, and Governance (ESG) and firm value: Study on IDX ESG Leader Index emitters

Abstract

In the last decade, investments that consider environmental, social, and governance (ESG) factors have become a priority for companies oriented towards long-term sustainability. This awareness drives the integration of ESG policies into business operations aimed at expanding markets and increasing profitability. This study aims to measure the impact of ESG on company value, focusing on issuers included in the IDX ESG Leaders listed on the Indonesia Stock Exchange (IDX) for the period 2020-2023 as the research sample. ESG is measured with three indicators, namely Environment, Social, and Corporate Governance. The Firm value is measured using Tobin's and employs control variables such as company size (LOGTA), the ratio of capital expenditure to assets (CAPEX/ASSETS), profitability (ROA), and leverage (LEVERAGE). Descriptive analysis and regression methods with a Fixed Effect Model approach, using Stata. The research results show that the ESG pillar of IDX ESG Leaders has a significant negative impact on company value due to several factors such as high investment costs and the implementation of ESG in environmentally friendly technology, social programs, and governance reforms in the short term. And the tendency of investors from developing countries to focus more on short-term financial results. The results of this study can be utilized by stakeholders to pay more attention to the effectiveness of ESG implementation in order to enhance the company's value