DOES ESG VALUE HAVE AN IMPACT ON A FIRM’S VALUE? LESSON LEARNED FROM INDONESIA
Downloads
Introduction: With growing interests from investors and researchers in ethical investing—partly driven by the United Nations’ Sustainable Development Goals (SDGs)—this study examines the connection between Socially Responsible Investments (SRI) and Islamic finance. Given that these two approaches share common objectives, this study investigates the integration of Environmental, Social, and Governance (ESG) disclosure with Islamic screening principles that affect a firm’s value.
Methods: The study focuses on companies listed on the Indonesia Sharia Stock Index (ISSI). It employes pooled Ordinary Least Squares (OLS) with a Random Effect Model (REM) to analyze the impact of ESG on firm value.
Results: The findings indicate that ESG scores significantly affect a company’s operations, financial performance, and market standing. However, the impact varies depending on the specific ESG factors. Governance factors demonstrate a stronger association with firm value compared to environmental, economic, and social factors.
Conclusion and suggestion: This results suggest that while ESG reporting is crucial, the specific focus areas highlighted in a company’s sustainability disclosures can influence performance in different ways. Strong evidence shows that sustainability reports significantly impact organizational performance. Furthermore, sharia-compliant companies are encouraged to emphasize Islamic values within their sustainability reporting to enhance transparency and appeal to investors. For Sharia-compliant companies in Indonesia, strategically integrating and transparently reporting ESG principles, especially those aligning with Islamic values, is becoming essential for enhancing financial performance, complying with new regulations, and attracting Muslim investors.
Al Ansari, R., & Alanzarouti, F. (2020). ESG and Islamic Finance: An Ethical Bridge Built on Shared Values. Journal of Islamic Financial Studies, 06(01), 05–11. https://doi.org/10.12785/jifs/060101
Alareeni, B. A., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance (Bingley), 20(7), 1409–1428. https://doi.org/10.1108/CG-06-2020-0258
Anas, E., & Mounira, B. A. (2009). Ethical Investment and the Social Responsibilities of the Islamic Banks. International Business Research, 2(2). https://doi.org/10.5539/ibr.v2n2p123
Azmi, W., Hassan, M. K., Houston, R., & Karim, M. S. (2021). ESG activities and banking performance: International evidence from emerging economies. Journal of International Financial Markets, Institutions and Money, 70. https://doi.org/10.1016/j.intfin.2020.101277
Bae, K.H., El Ghoul, S., Guedhami, O., Kwok, C. C., & Zheng, Y. (2018). Does corporate social responsibility reduce the costs of high leverage? Evidence from capital structure and product markets interactions. Journal of Banking and Finance. https://doi.org/10.1016/j.jbankn˜n.2018.11.007
Banerjee, S. B. (2007). Corporate Social Responsibility: the Good, the Bad and the Ugly. Edward Elgar Publishing Cheltenham.
Barth, M. E., Cahan, S. F., Chen, L., & Venter, E. R. (2017). The economic consequences associated with integrated report quality: Capital market and real effects. Accounting, Organizations and Society, 62, 43–64. https://doi.org/10.1016/j.aos.2017.08.005
Bellucci, M., Simoni, L., Acuti, D., & Manetti, G. (2019). Stakeholder engagement and dialogic accounting: Empirical evidence in sustainability reporting. Accounting, Auditing and Accountability Journal, 32(5), 1467–1499. https://doi.org/10.1108/AAAJ-09-2017-3158
Broadhurst, D., Watson, J., & Marshall, J. (2003). Ethical and Socially Responsible Investment A Reference Guide for Researchers. K. G. Saur Verlag GmbH. http://dnb.ddb.de.
Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115.
Buallay, A. (2020). Sustainability reporting and firm’s performance: Comparative study between manufacturing and banking sectors. International Journal of Productivity and Performance Management, 69(3), 431–445. https://doi.org/10.1108/IJPPM-10-2018-0371
Buallay, A., Fadel, S. M., Al-Ajmi, J. Y., & Saudagaran, S. (2020). Sustainability reporting and performance of MENA banks: is there a trade-off? Measuring Business Excellence, 24(2), 197–221. https://doi.org/10.1108/MBE-09-2018-0078
Charfeddine, L., Najah, A., & Teulon, F. (2016). Socially responsible investing and Islamic funds: New perspectives for portfolio allocation. Research in International Business and Finance, 36, 351–361. https://doi.org/10.1016/j.ribaf.2015.09.031
Cowton, C. J. (1994). The Development of Ethical Investment Products. In The ACT Guide to Ethical Conflicts in Finance (pp. 213–232). Elsevier. https://doi.org/10.1016/b978-1-85573-256-8.50019-0
Cowton, C. J., & Sandberg, J. (2012). Socially Responsible Investment. In Encyclopedia of Applied Ethics: Volume 1-4, Second Edition (Vols. 1–4, pp. 142–151). Elsevier. https://doi.org/10.1016/B978-0-12-373932-2.00086-7
de Villiers, C., Venter, E. R., & Hsiao, P. K. (2017). Integrated reporting: background, measurement issues, approaches and an agenda for future research. Accounting & Finance, 57(4), 937–959.
Devinney, T. M. (2009). Is the socially responsible corporation a myth? the good, the bad, and the ugly of corporate social responsibility. Academy of Management Perspectives, 23(2), 44–56. https://doi.org/10.5465/AMP.2009.39985540
Dusuki, A. W. (2008). What Does Islam Say about Corporate Social Responsibility? Review of Islamic Economics, 12(1).
Erragraguy, E., & Revelli, C. (2015). Should Islamic investors consider SRI criteria in their investment strategies? Finance Research Letters, 14, 11–19. https://doi.org/10.1016/j.frl.2015.07.003
Feng, J., Goodell, J. W., & Shen, D. (2021). ESG rating and stock price crash risk: Evidence from China. Finance Research Letters. https://doi.org/10.1016/j.frl.2021.102476
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Cambridge University Press.
Galbreath, J. (2013). ESG in Focus: The Australian Evidence. Journal of Business Ethics, 118(3), 529–541. https://doi.org/10.1007/s10551-012-1607-9
Giese, G., Lee, L.-E., Melas, D., Nagy, Z., & Nishikawa, L. (2017). How ESG Affects Equity Valuation, Risk and Performance (Issue NOVEMBER).
Girard, E., & Hassan, M. K. (2008). Is There a Cost to Faith-Based Investing: Evidence from FTSE Islamic Indices. The Journal of Investing, 17(4).
Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business and Society, 36(1), 5–31. https://doi.org/10.1177/000765039703600102
Gujarati, D. N. (2003). Basic Econometrics (4th ed.). McGraw Hill United States Military Academy.
Handoyo, S., & Anas, S. (2024). The effect of environmental, social, and governance (ESG) on firm performance: the moderating role of country regulatory quality and government effectiveness in ASEAN. Cogent Business and Management, 11(1). https://doi.org/10.1080/23311975.2024.2371071
Huang, D. Z. X. (2021). Environmental, social and governance (ESG) activity and firm performance: a review and consolidation. Accounting and Finance, 61(1), 335–360. https://doi.org/10.1111/acfi.12569
ICD-Refinitiv Islamic Finance. (2022). Islamic Finance Development Indicator Report 2022. http://bit.ly/IFDI2022.
Jaballah, J., Peillex, J., & Weill, L. (2018). Is Being Sharia compliant worth it? Economic Modelling, 72, 353–362. https://doi.org/10.1016/j.econmod.2018.02.011
Jensen, J. C., & Berg, N. (2012). Determinants of Traditional Sustainability Reporting Versus Integrated Reporting. An Institutionalist Approach. Business Strategy and the Environment, 21(5), 299–316. https://doi.org/10.1002/bse.740
Kabir Hassan, M., Chiaramonte, L., Dreassi, A., Paltrinieri, A., & Piserà, S. (2021). The crossroads of ESG and religious screening on firm risk. Research in International Business and Finance, 58. https://doi.org/10.1016/j.ribaf.2021.101500
Khan, M. A. (2022). ESG disclosure and Firm performance: A bibliometric and meta analysis. Research in International Business and Finance, 61. https://doi.org/10.1016/j.ribaf.2022.101668
Khemir, S., Baccouche, C., & Ayadi, S. D. (2019). The influence of ESG information on investment allocation decisions: An experimental study in an emerging country. Journal of Applied Accounting Research, 20(4), 458–480. https://doi.org/10.1108/JAAR-12-2017-0141
Li, H., Zhang, X., & Zhao, Y. (2022). ESG and Firm’s Default Risk. Finance Research Letters. https://doi.org/10.1016/j.frl.2022.102713
Li, X., Mohamed Saat, M., & Liu, Y. (2024). The Impact of Environmental Performance on Firm Value: Evidence from Listed Companies in China. International Journal of Academic Research in Business and Social Sciences, 14(7). https://doi.org/10.6007/ijarbss/v14-i7/21898
Lyn, E. O., & Zychowicz, E. J. (2010). THE IMPACT OF FAITH-BASED SCREENS ON INVESTMENT PERFORMANCE FALL 2010. The Journal of Investing, 19(3), 136–143. www.socialfunds.com,
Nobanee, H., & Ellili, N. (2016). Corporate sustainability disclosure in annual reports: Evidence from UAE banks: Islamic versus conventional. Renewable and Sustainable Energy Reviews, 55, 1336–1341. https://doi.org/10.1016/j.rser.2015.07.084
Otoritas Jasa Keuangan. (2023). Pasar Modal Syariah. Otoritas Jasa Keuangan.
Pinto, J. (2017). A multifocal framework for developing Intentionally Sustainable Organizations. In Current Opinion in Environmental Sustainability (Vol. 28, pp. 17–23). Elsevier B.V. https://doi.org/10.1016/j.cosust.2017.07.002
Price Waterhouse Cooper. (2021). Indonesia’s Sustainable Transformation. December.
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306–320. https://doi.org/10.1016/j.bir.2021.06.001
Razak, N. A., Marmaya, N. H., Othman, M. Z., Osman, I., Kassim, S., Maskuri, F. A., & Mat Tahir, N. K. (2023). Capabilities and Reputation Risks Towards Firm Performance. Journal of Risk and Financial Management, 16(2). https://doi.org/10.3390/jrfm16020125
Richardson, B. J. (2009). Keeping ethical investment ethical: Regulatory issues for investing for sustainability. Journal of Business Ethics, 87(4), 555–572. https://doi.org/10.1007/s10551-008-9958-y
Saba, I., Ariff, M., & Mohd Rasid, E. S. (2021). Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: a case study of Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 128–150. https://doi.org/10.1108/IMEFM-04-2019-0186
Saygili, E., Arslan, S., & Birkan, A. O. (2021). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review. https://doi.org/10.1016/j.bir.2021.07.001
Shah, M. E., Ibrahim, M. H., & Goud, B. (2021). ISLAMIC-ESG SYNERGIES AND PERFORMANCE CONTENTS.
Steyn, M. (2014). Organisational benefits and implementation challenges of mandatory integrated reporting: Perspectives of senior executives at South African listed companies. Sustainability Accounting, Management and Policy Journal, 5(4), 476–503. https://doi.org/10.1108/sampj-11-2013-0052
Williams, G., & Zinkin, J. (2010). Islam and CSR: A study of the compatibility between the Tenets of Islam and the UN global compact. Journal of Business Ethics, 91(4), 519–533. https://doi.org/10.1007/s10551-009-0097-x
Wilson, R. (1997). Islamic finance and ethical investment. International Journal of Social Economics, 24(11), 1325–1342.
Wong, W. C., Batten, J. A., Ahmad, A. H., Mohamed-Arshad, S. B., Nordin, S., & Adzis, A. A. (2021). Does ESG certification add firm value? Finance Research Letters, 39(April 2020), 101593. https://doi.org/10.1016/j.frl.2020.101593
Xu, M., Tse, Y. K., Geng, R., Liu, Z., & Potter, A. (2025). Greenwashing and market value of firms: An empirical study. International Journal of Production Economics, 284, 109606. https://doi.org/10.1016/j.ijpe.2025.109606
Yesuf, A. J., & Aassouli, D. (2020). Exploring synergies and performance evaluation between Islamic funds and socially responsible investment (SRIs) in light of the Sustainable Development Goals (SDGs). Heliyon, 6(8), e04562. https://doi.org/10.1016/j.heliyon.2020.e04562
Yoon, B., Lee, J. H., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability (Switzerland), 10(10). https://doi.org/10.3390/su10103635
Zaborovskaia, O., Nadezhina, O., & Avduevskaya, E. (2020). The impact of digitalization on the formation of human capital at the regional level. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 1–24. https://doi.org/10.3390/joitmc6040184

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
- Every manuscript submitted to JEBIS must obey to the policy and terms set by Journal of Economics and Business Islamic.
- Publication rights on the contents of manuscript published by JEBIS is owned by JEBIS under consent and approval by the corresponding author(s).
- Full text of electronic publication of manuscripts can be accessed free if used for the purpose of education and research according to copyright regulation.
- Share ” copy and redistribute the material in any medium or format
- Adapt ” remix, transform, and build upon the material
- You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
- You may not use the material for commercial purposes.
- If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.
Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.