SECTORAL DIFFERENCES IN ESG-FINANCIAL PERFORMANCE RELATIONSHIP: A COMPARATIVE STUDY OF INDONESIAN NON-FINANCIAL COMPANIES

Abstract

Environmental, Social, and Governance (ESG) practices have become strategic priorities globally, yet evidence on their financial performance implications remains inconsistent, revealing substantial variation across industries, especially in emerging markets. This study examines sectoral heterogeneity in the relationship between ESG performance and financial performance among Indonesian non-financial listed companies, highlighting why ESG value creation differs across sectors. Using correlation analysis and ordinary least squares (OLS) regression, we analyze 72 publicly listed non-financial firms across nine sectors during 2020–2024. ESG performance is measured through composite ESG scores, while financial performance is proxied by Return on Assets (ROA).

The results reveal significant cross-sector differences that challenge the assumption of a universally positive ESG–performance relationship. The consumer goods sector shows a strong negative association between ESG and ROA (β = −0.871, R² = 0.679, p < 0.01), suggesting potential over-investment in ESG within price-sensitive markets where firms face limited cost-recovery opportunities. In contrast, the energy and manufacturing sectors demonstrate modest positive relationships (β = 0.361 and β = 0.656, respectively), indicating stronger ESG materiality and greater potential for financial value creation. Meanwhile, basic materials and infrastructure exhibit near-zero associations (β = 0.069 and β = −0.038), consistent with their capital-intensive structures and constrained ability to translate sustainability initiatives into short-term profitability.

Overall, the findings emphasize the need for sector-specific ESG strategies that reflect industry characteristics, competitive dynamics, and institutional contexts. This study contributes to ESG materiality theory by demonstrating that industry context fundamentally moderates ESG–financial performance linkages in emerging markets.