Moderating Environmental, Social, and Governance (ESG) risk in the relationship between investment decisions and firm value

Abstract

Investment decisions of companies and investors consider aspects of the company's financial performance and relate to the company's environmental responsibility from company activities. Corporate environmental responsibility can be implemented in its attention to the Environment, Social, and Governance (ESG). This study aims to analyze the role of ESG risk in moderating the relationship between investment decisions and firm value in the ESG Leader Index (IDXESGL) group of companies on the Indonesia Stock Exchange (IDX). Sample selection was based on a purposive sampling of 30 companies for the 2020-2022 period with 4 IDXESGL index evaluation periods, so 20 companies were selected, and the total observation data was 80 observations. Analysis of the research data used the structural equation model (SEM) method with the Partial Least Square (PLS) analysis technique. The analysis results show that ESG risk moderates the relationship between investment decisions and firm value. Therefore, the smaller the company's ESG risk will increase the influence of investment decisions on company value, and in the future, the company will continue to grow sustainably.