The Impact of ESG Performance on Financial Performance: A Study of Companies in the SRI-KEHATI Index

Abstract

The research investigates how Environmental, Social, and Governance (ESG) performance affects the financial performance of corporations represented in Indonesia’s SRI-KEHATI Index. Using a quantitative approach with regression analysis, the research examines ESG scores sourced from Morningstar Sustainalytics, alongside financial metrics such as Return on Assets (ROA), and control variables including debt-to-asset ratio and institutional ownership. The findings reveal that ESG performance, comprising environmental, social, and governance dimensions, does not have a significant direct effect on financial performance in this sample. Conversely, the debt-to-asset ratio significantly influences profitability, whereas institutional ownership shows no measurable impact. The results suggest that the relationship between sustainability efforts and financial outcomes might be more long-term or context-dependent, warranting further research into sectoral and regional variations.