Environmental and Social Performance, Firm Value, and the Role of Sustainability Committee

ABSTRACT The presence of a specific role, such as a sustainability committee, is crucial for enhancing environmental and social performance and increasing market value. This study aims to examine the direct relationship between sustainability committee to environmental and social performance, as well as between environmental and social performance and firm value to provide additional evidence among mixed findings from previous result. The moderating relationship of the sustainability committee given the significant outcomes in the direct relationship between environmental and social performance and firm value. Using 11 years data in Indonesia, the sustainability committee has positive significant to environmental and social performance. Social performance has positive significant to firm value while environmental does not. Additionally, sustainability committee strengthens the relationship between environmental performance and firm value while social performance is not. These findings portray the importance of sustainability committee to both leverage the environmental and social performance, as well as firm value. The Difference‐in‐Difference (DiD) analysis reveals that, following POJK No. 51/2017, sustainability committee significantly impacts environmental and social performance and firm value, though with negative way. This distinction result provides additional insight since in short‐term the sustainability role still perceived in negative ways. This study contributes to the literature by presence of the role sustainability committee, which no previous studies documented in developing country and difference governance mechanisms such as Indonesia. The limitation of data sustainability committee recommends the future study should consider the role sustainability responsibilities in other committees, identify the characteristics and performance of sustainability committee.