The Relationship between Environmental, Social, and Governance (ESG) Performance and Stock Return

Ni Luh Ade Meina Rossalina; P. D'Yan Yaniartha Sukartha; Ni Ketut Rasmini

Authors

Ni Luh Ade Meina Rossalina Faculty of Economics and Business, Udayana University, Indonesia
P. D'Yan Yaniartha Sukartha Faculty of Economics and Business, Udayana University, Indonesia
Ni Ketut Rasmini Faculty of Economics and Business, Udayana University, Indonesia

Keywords:

Stock Return; ESG Performance; Signalling Theory

Abstract

This study aims to examine the relationship between environmental, social, and governance (ESG) performance and each of its pillars on stock returns of companies listed on the Indonesia Stock Exchange during the 2019–2023 period. The research population consists of all publicly listed companies, with a sample of 3,952 observations selected through purposive sampling. Data were obtained from Refinitiv Eikon and company financial reports. The analytical method employed is multiple linear regression. The results indicate that overall ESG performance, as well as the environmental, social, and governance pillars, has a negative relationship with stock returns.

References

Aditama, F. (2022). Analisis Pengaruh Environment, Social, Governance (ESG) Score terhadap Return Saham yang Terdaftar di Index IDX30. Contemporary Studies in Economic, Finance and Banking, 1(4), 592–602. https://doi.org/10.21776/csefb.2022.01.4.05

Agustin, I. N., & Suryati. (2022). Pengaruh Covid-19 Terhadap Pengembalian Saham LQ45 di Indonesia. Jurnal Ekonomi Dan Bisnis, 9(1), 95–103.

http://www.jstor.org/stable/24037207

Ahmed, A. M., Sharif, N. A., Ali, M. N., & Hágen, I. (2023). Effect of Firm Size on the Association between Capital Structure and Profitability. Sustainability (Switzerland), 15(14). https://doi.org/10.3390/su151411196

Ashwin, K. N. C., Smith, C., Badis, L., Wang, N., Ambrosy, P., & Tavares, R. (2016). ESG factors and risk-adjusted performance: a new quantitative model. Journal of Sustainable Finance and Investment, 6(4), 292–300. https://doi.org/10.1080/20430795.2016.1234909

DesJardine, M. R.,

Asimakopoulos, P., Asimakopoulos, S., & Li, X. (2023). The role of environmental, social, and governance rating on corporate debt structure. Journal of Corporate Finance, 83. https://doi.org/10.1016/j.jcorpfin.2023.102488

Marti, E., & Durand, R. (2021). Why Activist Hedge Funds Target Socially

Avramov, D., Cheng, S., Lioui, A., & Tarelli, A. (2022). Sustainable investing with ESG rating uncertainty. Journal of Financial Economics, 145(2), 642–664. https://doi.org/10.1016/J.JFINECO.2021.09.009

Responsible Firms: The Reaction Costs of Signaling Corporate Social

Benlemlih, M., Shaukat, A., Qiu, Y., & Trojanowski, G. (2018). Environmental and Social Disclosures and Firm Risk. Journal of Business Ethics, 152(3), 613–626. https://doi.org/10.1007/s10551-016-3285-5

Responsibility. Academy of Management Journal, 64(3), 851–872.

Brogi, M., & Lagasio, V. (2019). Environmental, social, and governance and company profitability: Are financial intermediaries different? Corporate Social Responsibility and Environmental Management, 26(3), 576–587. https://doi.org/10.1002/csr.1704

https://doi.org/10.5465/amj.2019.0238

Byun, H. S., Lee, J. H., & Park, K. S. (2012). How Does Product Market Competition Interact with Internal Corporate Governance?: Evidence from the Korean Economy*. Asia-Pacific Journal of Financial Studies, 41(4), 377–423. https://doi.org/10.1111/j.2041-6156.2012.01077.x

Cek, K., & Eyupoglu, S. (2020). Does environmental, social and governance performance influence economic performance? Journal of Business Economics and Management, 21(4), 1165–1184. https://doi.org/10.3846/jbem.2020.12725

Dewi, N. M. A. K. D.,

Chen, C. Da, Su, C. H. (Joan), & Chen, M. H. (2022). Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns. Journal of Air Transport Management, 102. https://doi.org/10.1016/j.jairtraman.2022.102229

& Suaryana, I. G. N. A. (2016). Pengaruh Volume Perdagangan Saham,

Cheng, B., Loannou, I., & Serafiem, G. (2014). Corporate Social Responsibility and Access to Finance. Strategic Management Journal, 35(1), 1–23. http://www.jstor.org/stable/24037207

Leverage, dan Tingkat Suku Bunga Terhadap Volatilitas Harga Saham. E-Jurnal

DesJardine, M. R., Marti, E., & Durand, R. (2021). Why Activist Hedge Funds Target Socially Responsible Firms: The Reaction Costs of Signaling Corporate Social Responsibility. Academy of Management Journal, 64(3), 851–872. https://doi.org/10.5465/amj.2019.0238

Akuntansi Universitas Udayana, 17, 1112–1140.

Dewi, N. M. A. K. D., & Suaryana, I. G. N. A. (2016). Pengaruh Volume Perdagangan Saham, Leverage, dan Tingkat Suku Bunga Terhadap Volatilitas Harga Saham. E-Jurnal Akuntansi Universitas Udayana, 17, 1112–1140.

Du, M., & Li, Y. (2024). Tax avoidance, CSR performance and financial impacts: evidence from BRICS economies. International Journal of Emerging Markets, 19(10), 3303–3328.

Du, M., & Li, Y.

Engelhardt, N., Ekkenga, J., & Posch, P. (2021). Esg ratings and stock performance during the covid-19 crisis. Sustainability (Switzerland), 13(13). https://doi.org/10.3390/su13137133

(2024). Tax avoidance, CSR performance and financial impacts: evidence from

Estuti, E. P., & Hendrayanti, S. (2020, November). Dampak Volume Perdagangan Saham, Profitabilitas dan Deviden Terhadap Volatilitas Harga Saham. Proceeding Seminar Nasional & Call For Papers.

BRICS economies. International Journal of Emerging Markets, 19(10),

Feng, G., Long, H., Wang, H., & Chang, C. (2022). Environmental, social and governance, corporate social responsibility, and stock returns: What are the short- and long-Run relationships? Corporate Social Responsibility and Environmental Management, 29(5), 1884–1895. https://doi.org/10.1002/csr.2334

3303–3328.

Friske, W., Hoelscher, S. A., & Nikolov, A. N. (2023). The impact of voluntary sustainability reporting on firm value: Insights from signaling theory. Journal of the Academy of Marketing Science, 51(2), 372–392. https://doi.org/10.1007/s11747-022-00879-2

Fuenzalida, D., Mongrut, S., Arteaga, J. R., & Erausquin, A. (2013). Good corporate governance: Does it pay in Peru? Journal of Business Research, 66(10), 1759–1770. https://doi.org/10.1016/j.jbusres.2013.01.008

Engelhardt, N.,

Giantari, T. (2024). Menavigasi Dunia Investasi Hijau: Memilih Saham dengan ESG dan Ukuran Perusahaan. Jurnal Proaksi, 11(3), 501–516. https://doi.org/10.32534/jpk.v11i3.5835

Ekkenga, J., & Posch, P. (2021). Esg ratings and stock performance during

Giese, G., Lee, L.-E., Melas, D., Nagy, Z., & Nishikawa, L. (2019). Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance. The Journal of Portfolio Management, 45(5), 69–83. https://doi.org/10.3905/jpm.2019.45.5.069

the covid-19 crisis. Sustainability (Switzerland), 13(13).

Gujarati, D. N., & Porter, D. C. (2012). Dasar-Dasar Ekonometrika (5th ed.). Salemba Empat.

https://doi.org/10.3390/su13137133

Gunawan, R. A., & Priska, V. (2018). Analisis Pengaruh Sustainability Terhadap Return Saham Perusahaan Sektor Industri Pertambangan dan Batu Bara. Jurnal Akuntansi Dan Bisnis, 4(2), 1. https://doi.org/10.31289/jab.v4i2.1978

Hafidzi, A. H., & Qomariah, N. (2022). The Role of Return on Asset Mediation in Influencing Corporate Social Responsibility on Stock Returns in Manufacturing Companies. Quality - Access to Success, 23(186), 230–236. https://doi.org/10.47750/QAS/23.186.30

Estuti, E. P., &

Handini, S., & Astawinetu, E. D. (2020). Teori Portofolio dan Pasar Modal Indonesia (Pertama). Scopindo Media Pustaka.

Hendrayanti, S. (2020, November). Dampak Volume Perdagangan Saham,

Huang, D. Z. X. (2022). Environmental, social and governance factors and assessing firm value: valuation, signalling and stakeholder perspectives. Accounting & Finance, 62(S1), 1983–2010. https://doi.org/10.1111/acfi.12849

Profitabilitas dan Deviden Terhadap Volatilitas Harga Saham. Proceeding

Indonesia Stock Exchange. (2022). IDX SRI-KEHATI Fact Sheet - Desember 2022. https://www.idx.co.id/media/12386/fact-sheet-idx-sri-kehati_des-2022.pdf

Seminar Nasional & Call For Papers.

Jiao, Y. (2011). Corporate Disclosure, Market Valuation, and Firm Performance. Financial Management, 40(3), 647–676. http://www.jstor.org/stable/41237920

Jihadi, M., Vilantika, E., Hashemi, S. M., Arifin, Z., Bachtiar, Y., & Sholichah, F. (2021). The Effect of Liquidity, Leverage, and Profitability on Firm Value: Empirical Evidence from Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 423–431. https://doi.org/10.13106/jafeb.2021.vol8.no3.0423

Feng, G., Long, H.,

Jogiyanto, H. (2016). Teori Portofolio dan Analisis Investasi (Kesepuluh). BPFE.

Wang, H., & Chang, C. (2022). Environmental, social and governance,

Kalam, K. (2020). The Effects of Macroeconomic Variables on Stock Market Returns: Evidence from Malaysia’s Stock Market Return Performance. In Journal of World Business (Vol. 55). https://www.researchgate.net/publication/344158504

corporate social responsibility, and stock returns: What are the short- and

Kartika, F., Dermawan, A., & Hudaya, F. (2023). Pengungkapan environmental, social, governance (ESG) dalam meningkatkan nilai perusahaan publik di Bursa Efek Indonesia. Jurnal Ilmiah Ilmu Sosial Dan Humaniora, 9(1), 29–39. https://doi.org/10.30738/sosio.v9i1.14014

long-Run relationships? Corporate Social Responsibility and Environmental

Khan, M. (2019). Corporate Governance, ESG, and Stock Returns around the World. Financial Analysts Journal, 75(4), 103–123. https://doi.org/10.1080/0015198X.2019.1654299

Management, 29(5), 1884–1895. https://doi.org/10.1002/csr.2334

Khan, M., Serafeim, G., & Yoon, A. (2015). Corporate Sustainability: First Evidence on Materiality. The Accounting Review, 91(6), 1697–1724. https://doi.org/10.2139/ssrn.2575912

Kristiani, L. A., & Werastuti, D. N. S. (2020). Pengaruh Kinerja Lingkungan dan Kinerja Sosial Terhadap Keuangan dengan Good Corporate Governance sebagai Variabel Pemoderasi. Jurnal Ilmiah Mahasiswa Akuntansi) Universitas Pendidikan Ganesha, 11(3).

Friske, W., Hoelscher,

Kulal, A., Abhishek N, Dinesh, S., & M.S., D. (2023). Impact of Environmental, Social, and Governance (ESG) Factors on Stock Prices and Investment Performance. Macro Management & Public Policies, 5(2), 14–26. https://doi.org/10.30564/mmpp.v5i2.5659

S. A., & Nikolov, A. N. (2023). The impact of voluntary sustainability

Kurniati, S. (2019). Stock returns and financial performance as mediation variables in the influence of good corporate governance on corporate value. Corporate Governance (Bingley), 19(6), 1289–1309. https://doi.org/10.1108/CG-10-2018-0308

reporting on firm value: Insights from signaling theory. Journal of the

Li, Zhang, X., & Zhao, Y. (2022). ESG and Firm’s Default Risk. Finance Research Letters, 47, 102713. https://doi.org/10.1016/j.frl.2022.102713

Academy of Marketing Science, 51(2), 372–392.

Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis. Journal of Finance, 72(4), 1785–1824. https://doi.org/10.1111/jofi.12505

https://doi.org/10.1007/s11747-022-00879-2

Low, S.-W., Kew, S.-R., & Tee, L.-T. (2011). International Evidence on the Link between Quality of Governance and Stock Market Performance. Global Economic Review, 40(3), 361–384. https://doi.org/10.1080/1226508X.2011.601646

Luo, D. (2022). ESG, liquidity, and stock returns. Journal of International Financial Markets, Institutions and Money, 78. https://doi.org/10.1016/j.intfin.2022.101526

Fuenzalida, D.,

Ma, D., Zhai, P., Zhang, D., & Ji, Q. (2024). Excess stock returns and corporate environmental performance in China. Financial Innovation, 10(1). https://doi.org/10.1186/s40854-023-00569-0

Mongrut, S., Arteaga, J. R., & Erausquin, A. (2013). Good corporate

Melinda, A., & Wardhani, R. (2020). The Effect of Environmental Social Governance and Controbersies on Firms Value: Evidence from Asia. In International Symposia in Economic Theory and Econometrics (Vol. 27, pp. 147–173). Emerald Publishing. https://doi.org/10.1108/S1571-038620200000027011

governance: Does it pay in Peru? Journal of Business Research, 66(10),

Mirayanti, N. M., & Wirama, D. G. (2017). Pengaruh Variabel Ekonomi Makro pada Return Saham LQ45 di Bursa Efek Indonesia (Vol. 21).

1759–1770. https://doi.org/10.1016/j.jbusres.2013.01.008

Nugraha, D. A., Asimakopoulos, S., & Sudrajat, O. Y. (2025). The Impact of ESG Ratings on Stock Price and Volatility: Evidence from LQ45, FTSE KLCI, and FTSE STI. Dinasti International Journal of Economics, Finance & Accounting, 6(2). https://doi.org/10.38035/dijefa.v6i2

Pandey, D. K., Kumar, R., & Kumari, V. (2024). Glasgow climate pact and the global clean energy index constituent stocks. International Journal of Emerging Markets, 19(10), 2907–2927. https://doi.org/10.1108/IJOEM-05-2022-0815

Giantari, T. (2024).

Qodary, H. F., & Tambun, S. (2021). Pengaruh Environmental, Social, ang Governance (ESG) dan Retention Ratio Terhadap Return Saham Dengan Nilai Perusahaan Sebagai Variabel Moderating. Jurnal Riset Ekonomi, 1(2), 159–172.

Menavigasi Dunia Investasi Hijau: Memilih Saham dengan ESG dan Ukuran

Rani, N., Yadav, S. S., & Jain, P. K. (2013). Market Response to the Announcement of Mergers and Acquisitions: An Empirical Study from India. Vision: The Journal of Business Perspective, 17(1), 1–16. https://doi.org/10.1177/0972262912469558

Perusahaan. Jurnal Proaksi, 11(3), 501–516.

Refinitiv Eikon Datastream. (2020). Environmental, Social and Governance (ESG) Scores from Refinitiv. . https://www.refinitiv.com/content/dam/ marketing/e%0An_us/documents/meth odology/esg-scores-methodology.pdf.

https://doi.org/10.32534/jpk.v11i3.5835

Ruan, L., & Liu, H. (2021). Environmental, social, governance activities and firm performance: evidence from China. Sustainability (Switzerland), 13(2), 1–16. https://doi.org/10.3390/su13020767

Rusmana, Y., & Puspitasari, E. (2021). Corporate social responsibility (CSR) disclosure and financial performance: Evidence from energy sector companies in Indonesia. . International Journal of Energy Economics and Policy, 11(1), 79–86.

Giese, G., Lee, L.-E.,

Ryu, D., Ryu, D., & Hwang, J. H. (2017). Corporate governance, product-market competition, and stock returns: evidence from the Korean market. Asian Business & Management, 16(1–2), 50–91. https://doi.org/10.1057/s41291-017-0014-6

Melas, D., Nagy, Z., & Nishikawa, L. (2019). Foundations of ESG Investing:

Setyawati, E. P., & Irwanto, A. (2020). Pengaruh Intellectual Capital terhadap Return Saham Perusahaan Manufaktur di Indonesia. Jurnal Ekonomi Dan Bisnis Airlangga, 30(2), 100–113. https://doi.org/10.20473/jeba.v30i22020.100-113

How ESG Affects Equity Valuation, Risk, and Performance. The Journal of

Shakil, M. H. (2021). Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity. Resources Policy, 72. https://doi.org/10.1016/j.resourpol.2021.102144

Portfolio Management, 45(5), 69–83.

Shakil, M. H. (2022). Environmental, social and governance performance and stock price volatility: A moderating role of firm size. Journal of Public Affairs, 22(3). https://doi.org/10.1002/pa.2574

https://doi.org/10.3905/jpm.2019.45.5.069

Suryani, I. G. A. S., & Suaryana, I. G. N. A. (2024). Karakteristik Perusahaan, Profitabilitas dan Pelaporan Keberlanjutan Pada Perusahaan Yang Terdaftar Di BEI 2018-2020. E-Jurnal Akuntansi, 34(4), 1005–1016.

Torre, M. La, Mango, F., Cafaro, A., & Leo, S. (2020). Does the ESG index affect stock return? Evidence from the Eurostoxx50. Sustainability (Switzerland), 12(16). https://doi.org/10.3390/SU12166387

Gujarati, D. N., &

Vu, T. N., Junttila, J. P., & Lehkonen, H. (2024). ESG news and long-run stock returns. Finance Research Letters, 60. https://doi.org/10.1016/j.frl.2023.104915

Porter, D. C. (2012). Dasar-Dasar Ekonometrika (5th ed.). Salemba

Vu, T. N., Lehkonen, H., Junttila, J. P., & Lucey, B. (2025). ESG investment performance and global attention to sustainability. North American Journal of Economics and Finance, 75. https://doi.org/10.1016/j.najef.2024.102287

Empat.

Yadav, P. L., Han, S. H., & Rho, J. J. (2016). Impact of Environmental Performance on Firm Value for Sustainable Investment: Evidence from Large US Firms. Business Strategy and the Environment, 25(6), 402–420. https://doi.org/10.1002/bse.1883

Yin, X. N., Li, J. P., & Su, C. W. (2023). How does ESG performance affect stock returns? Empirical evidence from listed companies in China. Heliyon, 9(5). https://doi.org/10.1016/j.heliyon.2023.e16320

Gunawan, R. A., &

Zhang, X., Xuankai, Z., & and He, Y. (2022). Does It Pay to Be Responsible? The Performance of ESG Investing in China. Emerging Markets Finance and Trade, 58(11), 3048–3075. https://doi.org/10.1080/1540496X.2022.2026768