The Role of Environment, Social and Governance in Shaping Firm Performance: Indonesian Evidence

The purpose of this study is to explore the effect of Environment, Social, and Governance (ESG) scores on Return on Assets (ROA), Risk-Adjusted Return on Capital (RAROC), and Tobins Q on firm performance. This study used 37 non-financial companies listed on the IDX between 2018 and 2022 in Indonesia companies. Linear and nonlinear panel data regression methods were used on the ESG score and its pillars, resulting in eight different models. The study found a U-shaped impact of ESG scores and social and environmental pillars on ROA. There is a positive linear relationship between ESG scores and the environmental and governance pillars with RAROC, while the social pillar shows an inverted U-shaped effect. However, ESG and its environmental and social pillars have a negative linear relationship with Tobins Q. The findings suggest the need to manage ESG initiatives strategically, aligning them with financial objectives and awareness of how ESG factors relate to profitability.