ESG performance and firm performance: The mediating role of green technology innovation disclosure in Indonesian Firms

Abstract

Abstract The increasing necessities of sustainable development has driven attention towards the relationship between Environmental, Social, and Governance (ESG) and firm financial performance, specifically for environmentally sensitive sectors. The available empirical results are still limited, and very few studies particularly examine whether Green Technology Innovation Disclosure (GTID) can act as a mediator between ESG and firm performance in emerging markets. This research attempts to examine the relationship between ESG and firm performance while testing the mediating role of GTID on energy and industrial companies listed on Indonesia Stock Exchange (IDX). Using a balanced panel data set of 82 companies over 4 years (2021-2024) with total 328 observations, by employing fixed-effects panel regression and the Generalized Structural Equation Modeling (GSEM) with 5,000 bootstrap replications estimate the indirect effect. The result indicated Insufficient evidence of a positive association between ESG and return on assets (ROA) that statistically significant at 10 percent. However, this relationship is sensitive to alternative specifications, as the ESG coefficient becomes statistically insignificant when return on equity (ROE) is used and is statistically significant only around the median of the conditional ROA distribution. More importantly, ESG performance is not significantly associated with GTID, GTID is not significantly associated with ROA, and the bootstrapped indirect effect is statistically insignificant. Thus, the findings do not support GTID as a mediating mechanism between ESG performance and firm performance. The study highlights the importance of distinguishing disclosure-based green technology measures from the substantive implementation and economic intensity of actual green technological innovation when evaluating their financial implications.