THE STRATEGIC ROLE OF ESG: HOW EVIRONMENTAL PERFORMANCE, CSR AND GCG AFFECT FINANCIAL OUTCOMES

Abstract

This study rigorously examines the extent to which environmental performance, Corporate Social Responsibility (CSR), and Good Corporate Governance (GCG) influence financial performance within Indonesia’s basic materials sector. Prompted by the escalating global emphasis on sustainability and the inconsistency of prior empirical findings, this research adopts a quantitative, causal approach, drawing upon secondary data from 30 firms listed on the Indonesia Stock Exchange (IDX) between 2021 and 2023. The sample was selected through purposive sampling, with considerations including environmental performance ratings (PROPER), the availability of annual and sustainability disclosures, and institutional ownership as a proxy for governance quality. Employing multiple linear regression analysis, the results demonstrate that environmental performance does not exert a statistically significant effect on financial performance. In contrast, both CSR practices and institutional ownership exhibit a positive and statistically significant influence on Return on Assets (ROA). These findings underscore the greater financial relevance of social and governance factors relative to environmental indicators. The study enriches the ESG-financial performance literature by highlighting the strategic importance of CSR and governance mechanisms in enhancing corporate value, offering salient implications for practitioners and policymakers committed to sustainable and transparent business conduct.