ENVIRONMENTAL, SOCIAL, AND GOVERNANCE SCORES AND SYSTEMIC RISK ON THE INDONESIA STOCK EXCHANGE

Abstract

The application of Environmental, Social, and Governance principles is an important element in ensuring long-term business sustainability and stability. Although in theory, good ESG performance can reduce corporate risk, empirical results show mixed findings. The lack of studies in Indonesia that partially examine the impact of each ESG dimension on systemic risk is a gap in this research because most previous studies are aggregate and focus on the context of developed countries. This study uses a quantitative approach from 32 companies that consistently reported ESG scores during the research period. Systemic risk is measured using stock beta through market regression, while the influence of ESG is analyzed using the Ordinary Least Squares regression method. The results show that overall, ESG scores do not have a significant effect on corporate systemic risk. The Social dimension has a significant negative effect on stock beta. Conversely, the Environmental and Governance dimensions did not have a significant effect on systemic risk. Social aspects play a major role in reducing market risk for companies in Indonesia, while environmental and governance dimensions have not yet shown a significant effect. These findings have implications for investors and regulators to pay more attention to social factors in risk management and sustainable investment policies.