Environmental-social-governance Firm performance, and firm value: Sustainability value-based performance as an intervening variable

As global markets increasingly prioritize sustainability, the role of Environmental, Social, and Governance (ESG) performance in influencing firm value has garnered significant attention. However, the pathway through which ESG efforts translate into financial outcomes remains underexplored, particularly in manufacturing sectors. This study examines the relationship between ESG performance, firm performance, sustainability value-based performance, and firm value, with sustainability value-based performance serving as a mediating variable. The primary objective of this research is to explore how ESG performance and firm performance influence firm value, with a focus on the role of sustainability value-based performance as a mediator in these relationships. A quantitative research design was employed, utilizing secondary data from annual reports, sustainability disclosures, and financial statements. By examining 100 manufacturing companies listed on the Indonesia Stock Exchange (BEI) from 2019 to 2023, this study seeks to provide a clearer understanding of the mechanisms that link ESG and financial performance to long-term firm value. Hypotheses were tested using Structural Equation Modeling – Partial Least Squares (SEM-PLS), facilitated by SmartPLS 3.0 software. The study found that both ESG performance and firm performance positively influence firm value, with sustainability value-based performance acting as a significant mediating variable. Strong ESG practices and financial performance create value through improved operational efficiency, stakeholder trust, and brand reputation. The study’s scope is limited to manufacturing companies listed on the BEI, potentially limiting generalizability to other sectors or regions. Additionally, the reliance on secondary data and publicly disclosed information may introduce reporting biases. This study contributes to the literature by providing empirical evidence on the mediating role of sustainability value-based performance, offering practical insights for managers and policymakers on integrating ESG practices to enhance firm value.