The impacts of Environmental, Social, and Governance (ESG) factors on profitability, firm value, and cost of capital: panel study of Indonesian companies in the period 2015 – 2019

This study aims to examine the effect of environmental, social, and governance (ESG) factors on profitability, firm value, and cost of capital of Indonesian listed firms. The data is collected from a sample of 34 publicly listed companies in Indonesia during 2015 – 2019 along with each firm’s complete ESG combined score and individual pillar score – environmental, social, and governance – from Thomson Reuters Refinitiv Eikon Datastream. This study utilized balanced panel data and panel data regression, with the random effect model estimation techniques best fitted for the proposed research models. The study found that ESG combined score negatively affects a firm’s profitability (i.e., ROE) significantly.However, the ESG combined score didn’t significantly affect the firm’s value (i.e., Tobin’s Q) and cost of capital (weighted average cost of capital, WACC). Moreover, individually, only the governance factor of ESG is significant yet negative in influencing a company’s profitability. Whereas none of the individual factors of ESG is significant with firm value and cost of capital in this study.