Determinants of Environmental, Social and Governance (ESG) Disclosure and Its Effects on Financial Performance: Evidence from Agroindustry and Environmentally Sensitive Firms in Indonesia

Abstract

Background: Companies with higher levels of Environmental, Social, and Governance (ESG) disclosure tend to exhibit better financial performance due to their ability to manage environmental and social risks effectively while enhancing their reputation among investors and consumers. Aims: This study examines the determinants of ESG disclosure and analyses its impact on financial performance in companies operating in Indonesia’s agroindustry and high-pollution sectors. Study Design: This research uses a quantitative explanatory research design. Place and Duration of Study: The study covers companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2022, using secondary data from financial reports, annual reports, and sustainability reports published through company websites. The observation period follows the availability of ESG and financial disclosure data during the study timeframe. Methodology: The study applies a quantitative approach using secondary data. The sample consists of 234 companies from agroindustry and other high-pollution sectors, including mining, fossil fuels, fashion, food retail, transportation, and construction. ESG disclosure is measured using an ESG Score. Three regression models are estimated. The first model analyses determinants of ESG disclosure. The second and third models test the impact of ESG disclosure on financial performance. Multiple linear regression is used to examine the relationships between ESG disclosure, company age, sales growth, and financial performance measured by Return on Assets (ROA). Results: The results show that ESG disclosure has a significant positive effect on ROA. Company age also shows a significant positive relationship with ROA, indicating that firms with longer operational histories tend to have better financial performance. Sales growth does not have a statistically significant effect on ROA. Overall, the findings indicate that higher ESG disclosure is associated with stronger financial performance, particularly among firms in high-pollution sectors. Conclusion: The study concludes that ESG disclosure plays an important role in enhancing financial performance in Indonesian agroindustry and high-pollution companies. Integrating ESG considerations into corporate strategy can support both sustainability objectives and financial outcomes. These findings highlight the relevance of ESG practices for companies facing higher environmental and social risks.