Evaluating the Role of Environmental Social, and Governance Quality in Enhancing Competitiveness and Investment Returns in Indonesia's Energy Sector

Sustainable development has become a global commitment, particularly vital in the energy sector due to its susceptibility to environmental, social, and governance (ESG) issues. Despite compliance with regulations, the impact of ESG on performance remains unclear, as many companies implement ESG merely to fulfill regulatory requirements. This research aims to empirically determine whether the quality of ESG implementation enhances competitiveness and subsequently influences investment performance in Indonesia’s energy sector. A causal research design was employed, with competitiveness as a mediating variable and investment performance as the dependent variable. The study sample comprises 15 energy sector companies listed on the Indonesia Stock Exchange from 2018 to 2022, selected based on ESG data availability via Bloomberg. We measure the ESG quality by disclosure scores, competitiveness by the return on invested capital (ROIC) divided by the weighted average cost of capital (WACC), and investment performance by return on assets (ROA). We analyze data using multiple regression with mediation by EViews software. The study finds that environmental performance implementation positively influences competitiveness, enhancing investment performance, the social and governance not positive significant. The findings provide valuable insights for policymakers and industry practitioners on the importance of environmental practices in achieving sustainable competitiveness and investment returns. This research contributes to the literature by empirically demonstrating the mediating role of competitiveness in the relationship between environmental performance and investment performance in the energy sector.