Assessing ESG Integration: Does Sustainability Enhance Financial Stability in Indonesian Banks?

Abstract

The adoption of Environmental, Social, and Governance (ESG) principles within Indonesia's financial industry presents a promising avenue for enhancing financial resilience and stability, particularly in the banking sector. ESG integration is anticipated to positively influence long-term resilience by emphasizing the three key pillars: environmental sustainability, social responsibility, and robust governance. This study investigates the impact of ESG scores on the financial stability of commercial banks in Indonesia, utilizing key financial indicators such as Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Equity (ROE), Return on Assets (ROA), and Loan-to-Deposit Ratio (LDR). The sample comprises Indonesian commercial banks that received ESG ratings in 2024 from Sustainalytics, a leading ESG research and analysis provider. Multivariate Analysis of Variance (MANOVA) was employed to analyze the data. The findings reveal those variations in ESG scores—whether low, medium, or high—do not have a statistically significant effect on the financial stability of banks in Indonesia.