Environmental, social, and governance (ESG) performance and firm perfomance: Does sharia compliance matters?
-
Yandi Suprapto(1*)
Department of Management Faculty of Business and Management, Universitas Internasional Batam
-
Derrick Sebastian(2)
Department of Management Faculty of Business and Management, Universitas Internasional Batam
-
Isnaini Nuzula Agustin(3)
Department of Management Faculty of Business and Management, Universitas Internasional Batam
(*) Corresponding Author
Keywords:
ESG Performance, Firm Performance, Sharia Compliance, ROE, Tobin'sQ
Abstract
This study aims to examine the influence of Environmental, Social, and Governance (ESG) Performance on Firm Performance and the moderating role of Shariah Compliance in companies in Indonesia. The study uses a quantitative approach with an explanatory research design and utilizes panel data of 305 company observations during the 2019–2024 period. The analysis was conducted using a regression model with Return on Equity (ROE) and Tobin’s Q as proxies for Firm Performance, and Shariah Compliance as a moderating variable. The results show that ESG Performance has a positive and significant effect on ROE, but does not significantly affect Tobin’s Q. At the same time, Shariah Compliance has a direct negative effect on firm performance, but is proven to strengthen the relationship between ESG Performance and Firm Performance. These findings indicate that ESG implementation supported by compliance with sharia principles can improve company performance more optimally, both in terms of profitability and firm value. Therefore, companies need to integrate ESG practices with sharia principles as a strategy to improve long-term performance, strengthen corporate legitimacy, and increase investor confidence.
Keywords: ESG Performance; Firm Performance; Sharia Compliance; ROE; Tobin’s Q
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References
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https://doi.org/https:// doi.org/10.3390/ijfs11030100
Cardao-pito, T. (2022). Hypothesis that Tobin ’ s q captures organizations ’ debt levels instead of their growth opportunities and intangible assets Hypothesis that Tobin ’ s q captures organizations ’ debt levels instead of their growth opportunities and intangible assets. Cogent Economics & Finance, 10(1).
https://doi.org/10.1080/23322039.2022.2132636
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Fani, A. A. B., & Prijadi, R. (2025). The Impact of Green Bonds on Firm Value and the Role of ESG: Revisiting the Stakeholder Value Maximization Theory. Gadjah Mada International Journal of Business, 27(3), 351–372.
https://doi.org/10.22146/gamaijb.110686
Firdaus, D., Maulida, H., Bakti, M., Barat, J., Firdaus, D., & Maulida, H. (2025). The Impact of Shariah Compliant and GCG Disclosure on Company Value ( Study of Shariah Banks Listed on the IDX ). Indonesian Journal of Economics and Management, 6(1), 1–12. https://doi.org/https://doi.org/10.35313/ijem.v6i1.6521 The
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https://doi.org/10.1080/23322039.2023.2287923
Freeman, R. E. E., & McVea, J. (2005). A Stakeholder Approach to Strategic Management. SSRN Electronic Journal, March. https://doi.org/10.2139/ssrn.263511
Fu, P., Ren, Y. S., Tian, Y., Narayan, S. W., & Weber, O. (2024). Reexamining the relationship between ESG and firm performance: Evidence from the role of Buddhism. Borsa Istanbul Review, 24(1), 47–60. https://doi.org/10.1016/j.bir.2023.10.011
Gao, S., Meng, F., Gu, Z., Liu, Z., & Farrukh, M. (2021). Mapping and clustering analysis on environmental, social and governance field a bibliometric analysis using scopus. Sustainability (Switzerland), 13(13). https://doi.org/10.3390/su13137304
Ghofar, A., Kusumadewi, A. W., & Widiastutik, R. N. (2025). Does firm size strengthen the relationship between digital transformation and capital structure ? A case in ASEAN nations. Cogent Business & Management, 12(1).
https://doi.org/10.1080/23311975.2025.2570503
Handayani, L., Canggih, C., Ainun, B., & Hadjilatif, S. D. (2025). Does ESG Value Have An Impact On A Firm ’ S Value ? Lesson. Jebis : Jurnal Ekonomi Dan Bisnis Islam, 11(1), 326–350. https://doi.org/10.20473/jebis.v11i1.68399
Hesniati, Stefani, C., & Budiman, J. (2025). When Risk-Taking Meets ESG : Implications for Firm Performance in Indonesia. Golden Ratio Of Finance Management, 5(2), 600–610. https://doi.org/https://doi.org/10.52970/grfm.v5i2.1670
Ivascu, L., Domil, A., Sarfraz, M., Bogdan, O., Burca, V., & Pavel, C. (2022). New insights into corporate sustainability, environmental management and corporate financial performance in European Union: an application of VAR and Granger causality approach. Environmental Science and Pollution Research, 29(55), 82827–82843. https://doi.org/10.1007/s11356-022-21642-8
Kramaric, T. P. (2023). COVID-19 OUT-BREAK. XII(1), 146–160.
https://doi.org/10.52950/ES.2023.12.1.008
Li, Q. (2023). ESG Environmental Performance and Corporate Performance Research. Journal of Innovation and Development, 4(1), 43–49.
https://doi.org/10.54097/jid.v4i1.10762
Liu, Y., Kim, C. Y., Lee, E. H., & Yoo, J. W. (2022). Relationship between Sustainable Management Activities and Financial Performance: Mediating Effects of Non-Financial Performance and Moderating Effects of Institutional
Environment. Sustainability (Switzerland), 14(3). https://doi.org/10.3390/su14031168
Naeem, N., Cankaya, S., & Bildik, R. (2022). Borsa _ Istanbul Review Does ESG performance affect the fi nancial performance of environmentally sensitive industries ? A comparison between emerging and developed markets. Borsa Istanbul Review, 22, S128–S140. https://doi.org/10.1016/j.bir.2022.11.014
Nafisah, L. (2025). Pengaruh Environmental , Social Dan Governance ( ESG ) Disclosure Terhadap Nilai Perusahaan Di Moderasi Ukuran Perusahaan Yang Terdaftar Di Bursa Efek Indonesia Periode 2020-2023 Lanskap bisnis kontemporer ditandai oleh tekanan global terhadap keberlanjut. Dinasti International Journal of Economics, Finance & Accounting, 31(2), 106–122.
https://doi.org/https://doi.org/10.38035/dijefa.v6i3
Nguyen, D. T., Hoang, T. G., & Tran, H. G. (2022). Help or Hurt? The Impact of ESG on Firm Performance in S&P 500 Non-Financial Firms. Australasian Accounting, Business and Finance Journal, 16(2), 91–102. https://doi.org/10.14453/aabfj.v16i2.7
Nguyen, N. T. T., Nguyen, N. P., & Thanh Hoai, T. (2021). Ethical leadership, corporate social responsibility, firm reputation, and firm performance: A serial mediation model. Heliyon, 7(4), e06809. https://doi.org/10.1016/j.heliyon.2021.e06809
Nik Asni, N. N. F., Azmi, N. A., & Raja Ahmad, R. A. (2024). The Effect Of Environmental, Social, And Governance (ESG) disclosure and shariah compliance on firm performance among listed firms in malaysia. Insight, 11(2), 1–15. https://doi.org/10.24191/ij.v11i2.2412
Nilawati, A. A. (2025). Pengaruh Environmental, Social, And Governance (Esg) Disclosure Terhadap Kinerja Perusahaan: Sebuah Tinjauan Literatur. 7(1), 97–108.
Pujiastuti, A., Nurhidayah, S. A., & Sulistiyanto, T. J. (2024). Does sharia compliance enhance ESG performance to better firm performance? Diponegoro International Journal of Business, 7(2), 177–190. https://doi.org/10.14710/dijb.7.2.2024.177-190
Pulino, S. C., Ciaburri, M., Magnanelli, B. S., & Nasta, L. (2022). Does ESG Disclosure Influence Firm Performance? Sustainability (Switzerland), 14(13), 1–18. https://doi.org/10.3390/su14137595
Shaikh, I. (2021). Environmental, Social, and Governance (Esg) Practice and Firm Performance: an International Evidence. Journal of Business Economics and Management, 23(1), 218–237. https://doi.org/10.3846/jbem.2022.16202
Signori, S., San-Jose, L., Retolaza, J. L., & Rusconi, G. (2021). Stakeholder value creation: Comparing esg and value added in european companies. Sustainability (Switzerland), 13(3), 1–16. https://doi.org/10.3390/su13031392
Suchman, M. C. (1995). Managing Legitimacy: Strategic and Institutional Approaches. The Academy of Management Review, 20(3), 571. https://doi.org/10.2307/258788
Temalagi, S., Darmawati, D., & Amiruddin, A. (2025). Environmental Social Governance ( ESG ) Score and Return on Equity ( ROE ) on company values which registered in IDX ESG Leaders. 1(1), 61–70.
Tjahjadi, B., Soewarno, N., & Mustikaningtiyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: A triple bottom line approach. Heliyon, 7(3), e06453. https://doi.org/10.1016/j.heliyon.2021.e06453
Valencia, L. R. (2025). Financial Performance and Corporate Governance on Firm Value : Evidence from Spain. International Journal of Financial Studies, 13(3), 1–24. https://doi.org/https://doi.org/10.3390/ijfs13030123
Wu, S., Li, X., Du, X., & Li, Z. (2022). The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure. Sustainability (Switzerland), 14(21), 1–22. https://doi.org/10.3390/su142114507
Wut, T. M., Lee, D., & Lee, S. W. (2023). Does Attitude or Intention Affect Behavior in Sustainable Tourism? A Review and Research Agenda. Sustainability (Switzerland), 15(19). https://doi.org/10.3390/su151914076
Xu, Z., Hou, W., Main, B. G. M., & Ding, R. (2022). The impact of ESG on financial performance: a revisit with a regression discontinuity approach. Carbon Neutrality, 1(1), 1–19. https://doi.org/10.1007/s43979-022-00025-5
Zalukhu, K., & Palupiningyas, D. (2025). Decomposition of the Determinants of Return on Equity ( ROE ) in the Indonesian Insurance Industry : Implementation of the Du Pont Method. Journal of Business Management and Economic Development, 3(01), 420–431. https://doi.org/https://doi.org/10.59653/jbmed.v3i01.1455
Zheng, X., & Bu, Q. (2024). Enterprise ESG Performance, Digital Transformation, and Firm Performance: Evidence from China. SAGE Open, 14(4), 1–18. https://doi.org/10.1177/21582440241291680
Zou, M. (2025). Research on the Relationship Between ESG and Corporate Financial Performance. 0, 61–67. https://doi.org/10.54254/2754-1169/2025.BL23675
https://doi.org/https://doi.org/10.31004/innovative.v4i4.13699
Agustin, I. N., Suhendri, N., Wang, A., & Yulfiswandi. (2024). ESG Performance and Indonesia Stock Return. Jurnal Riset Akuntansi Dan Keuangan Journal, 12(2), 919–932. https://doi.org/https://doi.org/10.17509/jrak.v12i2.71539
Agustin, I. N., Tan, M., & Marheni, D. K. (2025). Assessing the moderating role of geopolitical risk in the nexus between ESG performance and stock price crash risk : a GMM approach. Journal of Accounting and Investment, 26(3). https://doi.org/10.18196/jai.v26i3.26923
Alfikri, R. (2025). Integration of Sharia Compliance, Environmental, Social, and Governance (ESG) on financial performance: an empirical study across Sharia and Conventional banks. Ekonomika Syariah: Journal of Economic Studies, 9(2), 246–267. https://doi.org/http://dx.doi.org/10.30983/es.v9i2.10262
Alfredo, H. K., Pratama, M. I., & Sejati, H. (2025). Empirical Testing of Corporate Governance , and ESG Risk Scores : Their Effect on Company Value. Dinasti International Journal of Economics, Finance & Accounting, 6(3), 2246–2262. https://doi.org/https://doi.org/10.38035/dijefa.v6i3
Angir, P. (2024). The Influence of Environmental , Social , and Governance ( ESG ) Disclosure on Firm Value : An Asymmetric Information Perspective in Indonesian Listed Companies. Binus Business Review, 15(March), 29–40. https://doi.org/10.21512/bbr.v15i1.10460
Attia, E. F., & Almoneef, A. (2025). Impact of ESG on Firm Performance in the MENAT Region: Does Audit Quality Matter? Sustainability (Switzerland), 17(13), 1–16. https://doi.org/10.3390/su17136151
Awaludin, A. A., Prasetyo, A., Yusril, Y., & Saputra, D. C. (2025). Does Sharia compliance reflect better environmental , social , and governance ( ESG )? Evidence from Indonesia ’ s energy sector. 11(16), 196–210.
https://doi.org/10.20885/JEKI.vol11.iss2.art3
Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22(2), S119–S127.
https://doi.org/10.1016/j.bir.2022.11.006
Barbosa, A. de S., da Silva, M. C. B. C., da Silva, L. B., Morioka, S. N., & de Souza, V. F. (2023). Integration of Environmental, Social, and Governance (ESG) criteria: their impacts on corporate sustainability performance. Humanities and Social Sciences Communications, 10(1), 1–18. https://doi.org/10.1057/s41599-023-01919-0
Bui, T. N., & Nguyen, X. H. (2023). The Effect of Capital Structure on Firm Value : A Study of Companies Listed on the Vietnamese Stock Market. International Journal of Financial Studies Article, 11(100).
https://doi.org/https:// doi.org/10.3390/ijfs11030100
Cardao-pito, T. (2022). Hypothesis that Tobin ’ s q captures organizations ’ debt levels instead of their growth opportunities and intangible assets Hypothesis that Tobin ’ s q captures organizations ’ debt levels instead of their growth opportunities and intangible assets. Cogent Economics & Finance, 10(1).
https://doi.org/10.1080/23322039.2022.2132636
Christiawan, Y. J., Junio, G. A., & Manurung, R. (2026). The Effect of Environmental, Social, and Governance Performance on Firm Value with Proper Rating as A Moderating Variable. International Journal of Organizational Behavior and Policy, 5(1), 43–58. https://doi.org/https://doi.org/10.9744/ijobp.5.1.171-186
Fani, A. A. B., & Prijadi, R. (2025). The Impact of Green Bonds on Firm Value and the Role of ESG: Revisiting the Stakeholder Value Maximization Theory. Gadjah Mada International Journal of Business, 27(3), 351–372.
https://doi.org/10.22146/gamaijb.110686
Firdaus, D., Maulida, H., Bakti, M., Barat, J., Firdaus, D., & Maulida, H. (2025). The Impact of Shariah Compliant and GCG Disclosure on Company Value ( Study of Shariah Banks Listed on the IDX ). Indonesian Journal of Economics and Management, 6(1), 1–12. https://doi.org/https://doi.org/10.35313/ijem.v6i1.6521 The
Firmansyah, E. A., Umar, U. H., Jibril, R. S., & Mcmillan, D. (2023). Investigating the effect of ESG disclosure on firm performance : The case of Saudi Arabian listed firms. Cogent Economics & Finance, 11(2), 1–21.
https://doi.org/10.1080/23322039.2023.2287923
Freeman, R. E. E., & McVea, J. (2005). A Stakeholder Approach to Strategic Management. SSRN Electronic Journal, March. https://doi.org/10.2139/ssrn.263511
Fu, P., Ren, Y. S., Tian, Y., Narayan, S. W., & Weber, O. (2024). Reexamining the relationship between ESG and firm performance: Evidence from the role of Buddhism. Borsa Istanbul Review, 24(1), 47–60. https://doi.org/10.1016/j.bir.2023.10.011
Gao, S., Meng, F., Gu, Z., Liu, Z., & Farrukh, M. (2021). Mapping and clustering analysis on environmental, social and governance field a bibliometric analysis using scopus. Sustainability (Switzerland), 13(13). https://doi.org/10.3390/su13137304
Ghofar, A., Kusumadewi, A. W., & Widiastutik, R. N. (2025). Does firm size strengthen the relationship between digital transformation and capital structure ? A case in ASEAN nations. Cogent Business & Management, 12(1).
https://doi.org/10.1080/23311975.2025.2570503
Handayani, L., Canggih, C., Ainun, B., & Hadjilatif, S. D. (2025). Does ESG Value Have An Impact On A Firm ’ S Value ? Lesson. Jebis : Jurnal Ekonomi Dan Bisnis Islam, 11(1), 326–350. https://doi.org/10.20473/jebis.v11i1.68399
Hesniati, Stefani, C., & Budiman, J. (2025). When Risk-Taking Meets ESG : Implications for Firm Performance in Indonesia. Golden Ratio Of Finance Management, 5(2), 600–610. https://doi.org/https://doi.org/10.52970/grfm.v5i2.1670
Ivascu, L., Domil, A., Sarfraz, M., Bogdan, O., Burca, V., & Pavel, C. (2022). New insights into corporate sustainability, environmental management and corporate financial performance in European Union: an application of VAR and Granger causality approach. Environmental Science and Pollution Research, 29(55), 82827–82843. https://doi.org/10.1007/s11356-022-21642-8
Kramaric, T. P. (2023). COVID-19 OUT-BREAK. XII(1), 146–160.
https://doi.org/10.52950/ES.2023.12.1.008
Li, Q. (2023). ESG Environmental Performance and Corporate Performance Research. Journal of Innovation and Development, 4(1), 43–49.
https://doi.org/10.54097/jid.v4i1.10762
Liu, Y., Kim, C. Y., Lee, E. H., & Yoo, J. W. (2022). Relationship between Sustainable Management Activities and Financial Performance: Mediating Effects of Non-Financial Performance and Moderating Effects of Institutional
Environment. Sustainability (Switzerland), 14(3). https://doi.org/10.3390/su14031168
Naeem, N., Cankaya, S., & Bildik, R. (2022). Borsa _ Istanbul Review Does ESG performance affect the fi nancial performance of environmentally sensitive industries ? A comparison between emerging and developed markets. Borsa Istanbul Review, 22, S128–S140. https://doi.org/10.1016/j.bir.2022.11.014
Nafisah, L. (2025). Pengaruh Environmental , Social Dan Governance ( ESG ) Disclosure Terhadap Nilai Perusahaan Di Moderasi Ukuran Perusahaan Yang Terdaftar Di Bursa Efek Indonesia Periode 2020-2023 Lanskap bisnis kontemporer ditandai oleh tekanan global terhadap keberlanjut. Dinasti International Journal of Economics, Finance & Accounting, 31(2), 106–122.
https://doi.org/https://doi.org/10.38035/dijefa.v6i3
Nguyen, D. T., Hoang, T. G., & Tran, H. G. (2022). Help or Hurt? The Impact of ESG on Firm Performance in S&P 500 Non-Financial Firms. Australasian Accounting, Business and Finance Journal, 16(2), 91–102. https://doi.org/10.14453/aabfj.v16i2.7
Nguyen, N. T. T., Nguyen, N. P., & Thanh Hoai, T. (2021). Ethical leadership, corporate social responsibility, firm reputation, and firm performance: A serial mediation model. Heliyon, 7(4), e06809. https://doi.org/10.1016/j.heliyon.2021.e06809
Nik Asni, N. N. F., Azmi, N. A., & Raja Ahmad, R. A. (2024). The Effect Of Environmental, Social, And Governance (ESG) disclosure and shariah compliance on firm performance among listed firms in malaysia. Insight, 11(2), 1–15. https://doi.org/10.24191/ij.v11i2.2412
Nilawati, A. A. (2025). Pengaruh Environmental, Social, And Governance (Esg) Disclosure Terhadap Kinerja Perusahaan: Sebuah Tinjauan Literatur. 7(1), 97–108.
Pujiastuti, A., Nurhidayah, S. A., & Sulistiyanto, T. J. (2024). Does sharia compliance enhance ESG performance to better firm performance? Diponegoro International Journal of Business, 7(2), 177–190. https://doi.org/10.14710/dijb.7.2.2024.177-190
Pulino, S. C., Ciaburri, M., Magnanelli, B. S., & Nasta, L. (2022). Does ESG Disclosure Influence Firm Performance? Sustainability (Switzerland), 14(13), 1–18. https://doi.org/10.3390/su14137595
Shaikh, I. (2021). Environmental, Social, and Governance (Esg) Practice and Firm Performance: an International Evidence. Journal of Business Economics and Management, 23(1), 218–237. https://doi.org/10.3846/jbem.2022.16202
Signori, S., San-Jose, L., Retolaza, J. L., & Rusconi, G. (2021). Stakeholder value creation: Comparing esg and value added in european companies. Sustainability (Switzerland), 13(3), 1–16. https://doi.org/10.3390/su13031392
Suchman, M. C. (1995). Managing Legitimacy: Strategic and Institutional Approaches. The Academy of Management Review, 20(3), 571. https://doi.org/10.2307/258788
Temalagi, S., Darmawati, D., & Amiruddin, A. (2025). Environmental Social Governance ( ESG ) Score and Return on Equity ( ROE ) on company values which registered in IDX ESG Leaders. 1(1), 61–70.
Tjahjadi, B., Soewarno, N., & Mustikaningtiyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: A triple bottom line approach. Heliyon, 7(3), e06453. https://doi.org/10.1016/j.heliyon.2021.e06453
Valencia, L. R. (2025). Financial Performance and Corporate Governance on Firm Value : Evidence from Spain. International Journal of Financial Studies, 13(3), 1–24. https://doi.org/https://doi.org/10.3390/ijfs13030123
Wu, S., Li, X., Du, X., & Li, Z. (2022). The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure. Sustainability (Switzerland), 14(21), 1–22. https://doi.org/10.3390/su142114507
Wut, T. M., Lee, D., & Lee, S. W. (2023). Does Attitude or Intention Affect Behavior in Sustainable Tourism? A Review and Research Agenda. Sustainability (Switzerland), 15(19). https://doi.org/10.3390/su151914076
Xu, Z., Hou, W., Main, B. G. M., & Ding, R. (2022). The impact of ESG on financial performance: a revisit with a regression discontinuity approach. Carbon Neutrality, 1(1), 1–19. https://doi.org/10.1007/s43979-022-00025-5
Zalukhu, K., & Palupiningyas, D. (2025). Decomposition of the Determinants of Return on Equity ( ROE ) in the Indonesian Insurance Industry : Implementation of the Du Pont Method. Journal of Business Management and Economic Development, 3(01), 420–431. https://doi.org/https://doi.org/10.59653/jbmed.v3i01.1455
Zheng, X., & Bu, Q. (2024). Enterprise ESG Performance, Digital Transformation, and Firm Performance: Evidence from China. SAGE Open, 14(4), 1–18. https://doi.org/10.1177/21582440241291680
Zou, M. (2025). Research on the Relationship Between ESG and Corporate Financial Performance. 0, 61–67. https://doi.org/10.54254/2754-1169/2025.BL23675
Published
2026-07-16
How to Cite
Suprapto, Y., Sebastian, D., & Agustin, I. (2026). Environmental, social, and governance (ESG) performance and firm perfomance: Does sharia compliance matters?. Journal of Management : Small and Medium Enterprises (SMEs), 19(2), 1551-1566. https://doi.org/10.35508/jom.v19i2.28747
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Articles
