DOES PROFITABILITY MEDIATE THE EFFECT OF ESG DISCLOSURE ON FIRM VALUE? A STUDY ON ESGL INDEX COMPANIES (2022–2024)

This study aims to examine how investors respond to internal corporate factors when investing in companies that demonstrate a strong commitment to Environmental, Social, and Governance (ESG) practices. Specifically, the research analyzes whether profitability acts as a mediating variable in the relationship between ESG disclosure and firm value. ESG disclosure is measured using ESG Risk Rating scores published by Sustainalytics, profitability is represented by Return on Equity (ROA), and firm value is proxied by Tobin’s Q. Using the purposive sampling method, 13 companies listed in the ESG Leaders Index on the Indonesia Stock Exchange (IDX) during the 2022 to 2024 period were selected. The statistical analysis employed in this quantitative study was conducted using Smart PLS4 software. The results show that ESG disclosure does not have a significant effect on firm value but has a significant positive effect on profitability. Meanwhile, ROA is proven to have a significant positive effect on firm value. ROA, as a proxy for profitability, demonstrates a mediating effect, indicating that the influence of ESG disclosure on firm value does not occur directly but through the intervening variable, ROA.