Environmental, Social and Governance (ESG) and Corporate Financial Performance: Moderating Effects of Financial Slack

Nur Isna Inayati(1*), Ika Yustina Rahmawati(2), Tiara Pandansari(3), Ira Hapsari(4), Alfina Nur Ramadhani(5)


(1) Universitas Muhammadiyah Purwokerto
(2) Universitas Sebelas Maret Surakarta
(3) Universitas Muhammadiyah Purwokerto
(4) Universitas Muhammadiyah Purwokerto
(5) Univeristas Jenderal Soedirman
(*) Corresponding Author

Abstract


This study aims to explore the impact of ESG (environmental, social, governance) on company financial performance, particularly in the context of manufacturing companies. In addition, this research also seeks to analyze whether high financial slack can strengthen the relationship between ESG, both collectively and separately, and the company's Return on Assets (ROA). The population focused on in this study consists of 635 manufacturing companies operating in Indonesia, with a sample of 446 companies listed on the Indonesia Stock Exchange (IDX). The data used comes from annual reports and sustainability reports from the period 2018 to 2022. To analyze the data, this study employs linear regression analysis, which includes the calculation of coefficients, p-values, and R-squared. The results of the study show that the environmental, social, and governance variables do not have a significant relationship with the company's ROA, indicating that although ESG is considered important, its implementation in practice may not yet provide the expected impact on financial performance. Additionally, high financial slack was found not to strengthen the relationship between ESG and ROA, suggesting that the presence of greater financial resources does not always guarantee improved sustainable performance. The implications of this study highlight the importance of companies effectively managing ESG aspects and financial resources to achieve sustainability. These findings also provide theoretical insights into the role of financial slack in the relationship between ESG and financial performance, emphasizing that companies need to be more proactive in integrating sustainability practices into their business strategies. Therefore, this research opens up opportunities for further exploration of factors that may influence this relationship in the future, as well as the need to raise awareness and enhance ESG implementation among manufacturing companies in Indonesia.


Keywords


environmental, social, governance, financial slack, corporate financial performance

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DOI: https://doi.org/10.26714/mki.15.1.2025.%25p

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