Purpose: This study examines the effects of Environmental, Social, and Governance (ESG) performance on firm value, with profitability as a mediating variable, among companies included in the IDX ESG Leaders Index during 2021–2024.
Research Methodology: his quantitative study uses firm-year observations from 18 companies that were consistently included in the IDX ESG Leaders Index throughout the 2021–2024 period, resulting in 72 firm-year observations. The companies were selected using purposive sampling. Secondary data obtained from annual and sustainability reports were analyzed using Partial Least Squares Structural Equation Modeling.
Results: Environmental and Governance Performance significantly enhance profitability and firm value, while Social Performance has no significant effect. Profitability positively affects firm value and significantly mediates the effects of Environmental and Governance Performance, but not Social Performance, on firm value.
Conclusions: Environmental and Governance Performance contribute to firm value directly and through improved profitability, whereas Social Performance does not show a significant relationship with profitability or firm value.
Limitations: This study is limited to 18 companies consistently included in the IDX ESG Leaders Index during the 2021–2024 period, which may constrain generalizability and the ability to capture long-term ESG impacts.
Contributions: This study contributes to the ESG literature by proposing an integrated theoretical framework that extends Stakeholder Theory and Signaling Theory, offering a new theoretical perspective on how distinct ESG dimensions influence profitability and firm value among companies listed in the IDX ESG Leaders Index.