Integrating ESG Metrics into Corporate Strategy: Analysing the Long-term Value and Profitability

Jenna  Tania; Adhyva Wahyuningtyas  Permata Putri; Harjum  Muharam

Authors

Jenna Tania Universitas Diponegoro, Semarang, Indonesia
Adhyva Wahyuningtyas Permata Putri Universitas Diponegoro, Semarang, Indonesia
Harjum Muharam Universitas Diponegoro, Semarang, Indonesia

Keywords:

Environment, Social, Governance, Profitability, Corporate Strategy

Abstract

Research by McKinsey and the NYU Stern Centre for Sustainable Business indicates that robust ESG indicators are associated with enhanced returns and less negative risk. In Indonesia, firms possess a poor comprehension of the impact that integrating Environmental, Social, and Governance (ESG) measures into corporate strategy has on long-term value generation, resilience, and profitability. This study seeks to delineate the role of ESG in enhancing financial performance and sustainable growth within Indonesian firms. Researchers utilize purposive sampling to identify organizations that have consistently disclosed sustainability metrics in accordance with Environmental, Social, and Governance (ESG) requirements for a duration of five years. The population comprised 938 publicly listed companies on the Indonesia Stock Exchange (IDX), with 38 selected enterprises that consistently reported. This research does a comprehensive panel regression analysis using financial data sourced from the Bloomberg Terminal. The study reveals a complex relationship between Environmental, Social, and Governance disclosures and corporate financial success, particularly in emerging markets like Indonesia. It suggests that while firms prioritize governance transparency, its impact on financial performance may be temporary, affecting short-term profitability. Environmental and social disclosures, while positively connected with ROA, necessitate additional time or continuous application to yield financial benefits. The study emphasizes the imperative for a balanced and sustainable approach to Environmental, Social, and Governance integration in resource-constrained environments.

Downloads

Download data is not yet available.

References

Abror, G., & Muharam, H. (2024). Impact of Ultramicro Holding on Financial Performance and Business Sustainability. Research Horizon, 4(4), 47-54.

Alghafes, R., Karim, S., Aliani, K., Qureishi, N., & Alkayed, L. (2024). Influence of key ESG factors on Islamic banks’ financial performance: Evidence from GCC countries. International Review of Economics and Finance, 96.

Atif, M. (2021). The effects of energy consumption, economic growth, and financial development on CO2 emissions in Greece. Arthatama, 5(1), 13-26.

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17.

Candio, P. (2024). The effect of ESG and CSR attitude on financial performance in Europe: A quantitative re-examination. Journal of Environmental Management, 354.

Chen, S., Song, Y., & Gao, P. (2023). Environmental, social, and governance (ESG) performance and financial outcomes: Analyzing the impact of ESG on financial performance. Journal of Environmental Management, 345.

Cheng, L. T. W., Cheong, T. S., Wojewodzki, M., & Chui, D. (2025). The effect of ESG divergence on the financial performance of Hong Kong-listed firms: An artificial neural network approach. Research in International Business and Finance, 73.

Chininga, E., Alhassan, A. L., & Zeka, B. (2024). ESG ratings and corporate financial performance in South Africa. Journal of Accounting in Emerging Economies, 14(3), 692–713.

Cinciulescu, D. (2024). Developments and perspectives on corporate environmental risk management. A comprehensive analysis of ESG integrations. Revista de Stiinte Politice, (81), 83-91.

Dewa, A. (2023). Empirical Analysis of Street Safety: Driver Behavior and Traffic Characteristics on Traffic Accidents in Semarang. Research Horizon, 3(5), 499-508.

Dewanti, K. D. K., & Susila, G. P. A. J. (2024). The effect of environmental social governance (ESG) disclosures on financial performance in companies listed on the Indonesia Stock Exchange. Bisma: Jurnal Manajemen, 10(1).

Iliescu, E. M., & Voicu, M. C. (2021). The integration of ESG factors in business strategies–competitive advantage. Challenges of the Knowledge Society, 838-843.

Jin, Y. (2024). Distinctive Impacts of ESG Pillars on Corporate Financial Performance: A Random Forest Analysis of Korean Listed Firms. Finance Research Letters, 106395.

Khanchel, I., Lassoued, N., & Baccar, I. (2023). Sustainability and firm performance: the role of environmental, social and governance disclosure and green innovation. Management Decision, 61(9), 2720–2739.

Ologbenla, P. (2021). The effect of corporate tax on government expenditure in Nigeria. Research Horizon, 1(5), 157-171.

Palacin-Bossa, G. D., Alvear-Montoya, L. G., & Macías-Jiménez, M. A. (2024). Exploring the relationship between ESG, financial performance, and corporate reputation using ANOVA: The case of Colombian companies. Procedia Computer Science, 241, 552–557.

Pamela, Q., & Indrawati, L. R. (2022). Effect of Inflation, Exports, and Employment on Economic Growth in Central Java. Research Horizon, 2(5), 501-510.

Parashar, M., Jaiswal, R., & Sharma, M. (2024). An empirical analysis of ESG and financial performance of clean energy companies through unsupervised machine learning. Procedia Computer Science, 241, 330–337.

Patil, R. A., Ghisellini, P., & Ramakrishna, S. (2021). Towards sustainable business strategies for a circular economy: Environmental, Social and Governance (ESG) performance and evaluation. An introduction to circular economy, 527-554.

Pinheiro, A. B., Panza, G. B., Berhorst, N. L., Toaldo, A. M. M., & Segatto, A. P. (2024). Exploring the relationship among ESG, innovation, and economic and financial performance: evidence from the energy sector. International Journal of Energy Sector Management, 18(3), 500–516.

Pratiwi, D. E., Nugroho, I. C., Susanto, A. S., & Muharam, H. (2024). Long-Term Performance of Green Company IPOs and Underpricing Factors for Gold Indonesia 2045. Research Horizon, 4(4), 101-108.

Quyen, T. H. (2020). The relationship between green procurement practices and organizational performance in the manufacturing industry of Vietnam. Arthatama, 4(1), 1-16.

Saha, A. K., & Khan, I. (2024). Sustainable prosperity: unravelling the Nordic nexus of ESG, financial performance, and corporate governance. European Business Review.

Shah, M. H. (2022). Impact of green marketing strategy on business performance-mediating role of corporate image in construction industry of Kenya. Arthatama, 6(1), 1-11.

Suchman, M. C. (1995). Managing Legitimacy: Strategic and Institutional Approaches. In Management Review (Vol. 20, Issue 3).

Sutrisno, I. R., & Lazuardy, D. (2024). The Effect of Perceived Value and Service Quality on Customer Satisfaction: A Sustainable Growth Strategy for Digital Banks in Indonesia. Research Horizon, 4(4), 131-146.

Tsang, A., Frost, T., & Cao, H. (2023). Environmental, social, and governance (ESG) disclosure: A literature review. The British Accounting Review, 55(1), 101149.

Weston, P., & Nnadi, M. (2023). Evaluation of strategic and financial variables of corporate sustainability and ESG policies on corporate finance performance. Journal of Sustainable Finance & Investment, 13(2), 1058-1074.