Summoning Indonesia’s SOEs, compliance with ESG means profits!

Many studies found that the planet agenda can go hand in hand with the profit agenda. A study by Giese et al. (2019) using 1600 global corporations during 2007-2017 found that managing environmental risks can increase company productivity and profitability. Model of Naeem, Cankaya, and Bildik (2022) using a 10-year period of 383 corporations from seven developed countries and 11 emerging markets also found a positive correlation between the rate of return on assets (ROA) and Environmental, Social, and Governance (ESG) performance, especially the environmental part, controlling total asset value, debt to asset ratio, and debt to equity ratio. Resembling the model with Indonesia corporate data from 2016-2022, it is affirmed that in Indonesia, environmental score performance significantly increases ROA. Furthermore, the mining sector and manufacturing are even so.

A positive correlation between ESG and corporate profitability indicates that corporate-level operations aimed at increasing environmental sustainability would likely increase profitability. Derisking environmental damage at the corporate level could positively affect financial performance and asset quality, even in Indonesia. With that in mind, the expansion of waste management that harnesses technology, the usage of input materials that are more environmentally friendly, and novel technology innovations for more socially optimum production are not just businesses’ residuals but enablers of sectoral capacity expansion. To conclude, ‘profit’ can go hand in hand with ‘planet’ agenda.


Konten Terkait

Back to top button