Erni Ekawati

The adoption of environmental, social, and governance (ESG) measures to realize socially responsible companies continues to accelerate, becoming a trend amid global uncertainty due to climate change and the COVID-19 pandemic. This study aims to examine the effect of company growth on sustainable performance, moderated by company stock mispricing in Indonesia and Japan, representing a developing and a developed country, respectively. This study uses panel data regression, namely the Common Effect Model (CEM), Fixed Effect Model (FEM), and Random Effect Model (REM), to test hypotheses. With a total of 42 observations from companies listed on the Indonesia Stock Exchange (IDX) and 112 observations from companies listed on the Japan Stock Exchange (JPX) during 2019–2020, the results show that a company’s growth has a negative effect on sustainable performance in Indonesia, while in Japan it has no effect. Stock mispricing strengthens the negative effect of company growth on sustainable performance in Indonesia but has no effect in Japan. This study found that companies in Indonesia place more emphasis on internal growth than on ESG implementation compared to companies in Japan. The implication of this study is that the implementation of ESG shows different dynamics when comparing two countries. Indonesia needs to evaluate the regulations governing socially responsible businesses in order to encourage further improvement of ESG performance. Meanwhile, in Japan, ESG practices have been running voluntarily, so enforcement from regulators is relatively less necessary.

This study investigates the effect of Environmental, Social, and Governance (ESG) scores on bank performance in five Association of Southeast Asian Nations (ASEAN) countries: Indonesia, Malaysia, Singapore, Thailand, and the Philippines. This study aims to examine the effect of ESG scores on bank financial performance and investigate whether the influence of bank ownership can strengthen both. This study uses a sample of 26 banks in 5-ASEAN countries during 2016–2021. This amount is the result of data sorting conducted on 86 banks by adjusting to the research sample criteria. Using multiple linear regression analysis, this study shows that ESG scores have a significant positive effect on bank financial performance as measured by Return on Assets (ROA), Return on Equity (ROE), and Price to Book Value (PBV). Furthermore, this study found that the positive impact of ESG scores on bank performance is stronger for state-owned banks compared to private banks. However, bank ownership does not affect the relationship between ESG scores and ROA. These findings suggest that law enforcement by the government through regulators plays an important role in encouraging banks to view ESG as a driving value to improve their performance.

The study provides empirical evidence on the cost implications of socially responsible investing (SRI) in relation to Environmental, Social, and Governance (ESG) preferences. Specifically, it examines whether socially responsible investors incur higher costs to meet non-pecuniary goals and how government involvement can offer rewards to socially responsible investors in supporting the realization of the United Nations’ Sustainable Development Goals (SDGs). Using panel data regression, this study analyzes ESG scores and financial and return data of 1,450 firm-year observations in ASEAN-5 countries over the period 2015–2022. The findings reveal that firms implementing ESG practices experience an increase in their cost of capital (CoC), supporting the notion that ESG investment requires a sacrificial cost. Even firms with low operational risks face rising CoC when implementing ESG principles. However, the study also finds that firms located in countries with better government effectiveness and stronger control of corruption benefit from a reduction in CoC, despite ESG implementation. Conversely, country risks, particularly those related to environmental pollution, exacerbate the CoC for firms adhering to ESG criteria. Overall, the results suggest that while country-level governance can reward socially responsible investors by mitigating CoC, country risks such as pollution pose additional burdens, highlighting the need for government intervention to incentivize SRI and align it with global sustainability goals.

Acknowledgment
This research was funded by the Indonesian Ministry of Education, Research, and Technology (DRTPM), Fundamental Research Grant in 2024 [0609.10/LL5-INT/AL.04/2024,359/D.01/LPPM/2024].