Green Energy Transition: Do ESG Scores Enhance Corporate Performance and Firm Value?

Abstract

This study analyzes the influence of Environmental, Social, and Governance (ESG) scores on the performance and value of energy sector companies in Indonesia for the 2015–2024 period. This research is crucial because the energy sector is often identified as the largest contributor to carbon emissions and faces increasing pressure from regulations and demands for a green energy transition. Understanding how sustainability practices impact financial outcomes is vital for energy companies in Indonesia to balance environmental responsibility with profitability. Corporate performance is measured using Return on Assets (ROA) and Return on Equity (ROE), while the Tobin's Q ratio measures firm value. The results show that ESG scores simultaneously have a significant positive effect on both financial performance and firm value. To some extent, the environmental and governance pillars are the dominant factors in increasing investor confidence and operational efficiency. This proves that ESG disclosure is not merely a cost burden but a strategic investment that strengthens legitimacy and reduces market risk. These findings provide a basis for regulators and energy sector managers to strengthen sustainability policies further to ensure corporate competitiveness in the global capital market.