ESG Risk and Firm’s Performance

This study aims to explore the link between market, financial, and operational performance and environmental, social, and governance (ESG) risk. This quantitative study is based on data analysis from up to 100 observations collected between 2019 and 2023. Companies listed on the Indonesia Stock Exchange IDX LQ45 throughout the observation period serve as the study's samples. Purposive sampling was used to choose the sample, and it was done so based on particular research-relevant criteria. The performance of the company is examined in relation to ESG risks using the robust standard errors model. Stakeholder theory, which highlights the significance of corporate management taking into account the interests of all stakeholders, serves as the foundation for the theoretical model of this work. The dependent variables in the practical model are ROA, ROE, and Tobin's Q, whereas the independent variable is the ESG risk rating. The conclusions drawn from the empirical data demonstrate that market and financial performance are significantly harmed by ESG risk. Nonetheless, operational performance is not significantly impacted by ESG risk. This research adds to the limited body of knowledge about the risk associated with sustainability reporting and how it affects a company's capacity to perform financially and on the market. Organizations that effectively handle environmental, social, and governance (ESG) risks can reap enduring advantages such as enhanced standing and stable finances. A crucial first step toward ensuring sustainability and competitiveness in the future is the incorporation of ESG into company strategy.Tujuan dari penelitian ini adalah untuk menyelidiki hubungan antara kinerja pasar, keuangan, dan operasional dengan risiko lingkungan, sosial, dan tata kelola (LST). Berdasarkan pemeriksaan data yang dikumpulkan dari 100 observasi antara tahun 2019 dan 2023, penelitian ini bersifat kuantitatif. Kinerja perusahaan dikaji dalam kaitannya dengan risiko ESG dengan menggunakan model kesalahan standar yang kuat. Model teoritis dibangun berdasarkan teori pemangku kepentingan. Model praktis menggunakan peringkat risiko ESG sebagai variabel independen dan ROA, ROE, dan Tobin's Q sebagai variabel dependen. Temuan yang disimpulkan dari hasil empiris menunjukkan bahwa risiko ESG berpengaruh negatif terhadap kinerja keuangan dan pasar. Namun, risiko ESG tidak berpengaruh terhadap kinerja operasional. Penelitian ini berkontribusi pada literatur yang langka tentang tingkat pelaporan keberlanjutan berdasarkan risiko dan dampaknya terhadap kinerja