ESG Performance and Firm Value in the Indonesian Banking Sector: Empirical Evidence in the Context of the Green Economy

Abstract

This study aims to examine the effect of Environmental, Social, and Governance (ESG) Performance on firm value and to investigate the impact of each ESG dimension, namely Environmental (ENV), Social (SOC), and Governance (GOV), on the firm value of Indonesian banking companies. The population consists of all banking firms operating in Indonesia during the 2019–2024 period. The sample was selected using a purposive sampling technique based on several criteria, including the consistent publication of annual and sustainability reports, the availability of complete ESG data, and sufficient financial information. Based on these criteria, 27 banking companies with 140 firm-year observations were obtained. This study employed a quantitative approach using panel data regression analysis. Model selection was conducted through the Chow Test, Hausman Test, and Lagrange Multiplier Test, which indicated that the Fixed Effect Model (FEM) was the most appropriate estimation method. The findings reveal that ESG Performance has a negative effect on firm value, suggesting that the Indonesian capital market has not fully incorporated the long-term benefits of ESG practices into banking firm valuations. Further analysis indicates that the Social Score (SOC) negatively affects firm value, while the Environmental Score (ENV) and Governance Score (GOV) have no significant effect. Robustness tests using logarithmic transformation of Tobin’s Q, outlier exclusion, and robust standard errors confirm the consistency of the results. The study concludes that ESG implementation in the Indonesian banking sector currently serves more as a mechanism for enhancing legitimacy and long-term sustainability rather than generating immediate increases in market value