Green energy transition: Do ESG scores enhance corporate performance and firm value?
Abstract
Environmental, Social, and Governance (ESG) criteria have gained widespread recognition as key markers of corporate long-term sustainability. For the energy sector, where operations have substantial environmental consequences, ESG adoption is increasingly viewed as a pathway to bolster financial outcomes and market worth. This paper investigates how ESG ratings influence both corporate performance and firm value within energy enterprises listed on the Indonesia Stock Exchange (IDX) and evaluated by Refinitiv Eikon between 2015 and 2024. Utilizing purposive sampling, we construct a panel dataset of 70 observations spanning 7 companies, analyzed via a Random Effects Model. Corporate performance is operationalized through Return on Assets (ROA) and Return on Equity (ROE), whereas market value is captured by Tobin's Q. The empirical results reveal that environmental ratings exert a statistically significant positive influence on ROA, ROE, and Tobin's Q. In contrast, ratings for social and governance aspects show no significant relationship with these financial and valuation indicators. Consequently, these outcomes highlight the environmental pillar as the primary driver of financial performance and market value among Indonesian energy firms.