ESG, ENVIRONMENTAL COSTS, AND FIRM PERFORMANCE: THE MODERATING ROLE OF INDEPENDENT DIRECTORS
DOI:
https://doi.org/10.33508/rima.v8i2.7704Keywords:
ESG score, Environmental Costs, Firm Performance, Independent Directors, SustainabilityAbstract
This study examines the influence of ESG scores and environmental costs on firm performance, as well as the moderating role of independent directors. Using secondary data and hypothesis testing, the findings show that ESG scores have a positive and significant effect on firm performance, supporting the Resource-Based View (RBV) framework that positions ESG as an intangible asset capable of enhancing operational efficiency, reputation, and legitimacy. Conversely, environmental costs exert a negative effect, indicating that in the short term they are perceived as financial burdens rather than strategic investments. The moderating role of independent directors is not supported, suggesting that their presence does not strengthen the relationship between ESG, environmental costs, and performance, although they still have a direct positive influence through accountability and conflict reduction. Theoretically, this study contributes to sustainability and governance literature by clarifying the dual role of ESG and environmental costs, while practically it highlights the need for efficient environmental cost management and institutional support to ensure that such expenditures generate long-term value. Limitations include reliance on secondary data, lack of industry-specific analysis, and the absence of board quality measures, offering directions for future research.
Downloads
References
Abdelhalim, A. M. (2024). How management accounting practices integrate with big data analytics and its impact on corporate sustainability. Journal of Financial Reporting and Accounting, 22(2), 416-432. https://doi.org/10.1108/JFRA-01-2023-0053
Abdi, Y., Li, X., & Càmara-Turull, X. (2020). Impact of sustainability on firm value and financial performance in the air transport industry. Sustainability, 12(23), 9957. https://doi.org/10.3390/su12239957
Al Azizah, U. S., & Haron, R. (2025). The sustainability imperative: evaluating the effect of ESG on corporate financial performance before and after the pandemic. Discover Sustainability, 6(1), 529. https://doi.org/10.1007/s43621-025-01401-8
Al-Mawali, H. (2021). Environmental cost accounting and financial performance: The mediating role of environmental performance. Accounting, 7(3), 535-544. https://doi.org/10.5267/j.ac.2021.1.005
Aziz, N. H. A., Alshdaifat, S., Latiff, A. R. A., & Osman, M. N. H. (2024). ESG controversies and firm performance with moderating role of board effectiveness: Evidence from ASEAN. In Business development via AI and digitalization: Volume 2 (pp. 271-282). Cham: Springer Nature Switzerland.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
Brogi, M., & Lagasio, V. (2019). Environmental, social, and governance and company profitability: Are financial intermediaries different?. Corporate Social Responsibility and Environmental Management, 26(3), 576-587. https://doi.org/10.1002/csr.1704
Bursa Efek Indonesia. (2025). Nilai ESG Perusahaan Tercatat. https://www.idx.co.id/id/perusahaan-tercatat/nilai-esg diakses pada Agustus 2025.
Cai, C., Li, Y., & Tu, Y. (2024). Big data capabilities, ESG performance and corporate value. International Review of Economics & Finance, 96, 103540. https://doi.org/10.1016/j.iref.2024.103540
Choi, J. H., Hwang, S. J., & Chiu, J. L. (2024). The moderating role of governance mechanisms on the relationship between ESG disclosure and firm value. Review of Integrative Business and Economics Research, 13(3), 59-72.
Dah, M. A., & Jizi, M. I. (2018). Board independence and the efficacy of social reporting. Journal of International Accounting Research, 17(1), 25-45. https://doi.org/10.2308/jiar-51952
Demiraj, R., Demiraj, E., & Dsouza, S. (2025). The Moderating Role of Worldwide Governance Indicators on ESG–Firm Performance Relationship: Evidence from Europe. Journal of Risk and Financial Management, 18(4), 213. https://doi.org/10.3390/jrfm18040213
Demiraj, E., Demiraj, R., & Dsouza, S. (2024). Country governance scores as moderators of ESG impact on firm performance in the European context. PressAcademia Procedia, 19(1), 32-35. https://doi.org/10.17261/Pressacademia.2024.1905
Elmghaamez, I. K., Nwachukwu, J., & Ntim, C. G. (2024). ESG disclosure and financial performance of multinational enterprises: The moderating effect of board standing committees. International Journal of Finance & Economics, 29(3), 3593-3638. https://doi.org/10.1002/ijfe.2846
Feng, K., & Bao, C. (2024). The Impact of Environmental Management Capabilities on the Economic Value Added of Industrial Enterprises—Empirical Evidence from China. Sustainability, 16(8), 3356. https://doi.org/10.3390/su16083356
Gillan, S. L., Koch, A., & Starks, L. T. (2021). Firms and social responsibility: A review of ESG and CSR research in corporate finance. Journal of Corporate Finance, 66, 101889. https://doi.org/10.1016/j.jcorpfin.2021.101889
Gupta, R., Sinha Ray, R., Sharma, T., & Sharma, G. (2025). How do ESG-centric social disclosures influence the financial performance of firms? An Indian perspective based on the system GMM approach. Applied Economics, 1-18. https://doi.org/10.1080/00036846.2025.2449618
Ho, L., Nguyen, V. H., & Dang, T. L. (2024). ESG and firm performance: do stakeholder engagement, financial constraints and religiosity matter?. Journal of Asian Business and Economic Studies, 31(4), 263-276. https://doi.org/10.1108/JABES-08-2023-0306
Hu, J., & Zhao, Y. (2024). Improving corporate profitability from the inside out with environmental performance: an empirical analysis based on Chinese listed company data. Frontiers in Environmental Science, 12, 1489896. https://doi.org/10.3389/fenvs.2024.1489896
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. In Corporate governance. Gower.
Kamaludin, K., Ibrahim, I., Sundarasen, S., & Faizal, O. V. A. (2022). ESG in the boardroom: Evidence from the Malaysian market. International Journal of Corporate Social Responsibility, 7(1), 4. https://doi.org/10.1186/s40991-022-00072-2
Kementrian ESDM. (2024). Laporan Emisi Sektor Energi dan Transisi Energi Nasional. Jakarta: ESDM.
Le, T. T., & Nguyen, T. M. A. (2019). Practice environmental cost management accounting: The case of Vietnamese brick production companies. Management Science Letters, 9(1), 105-120. https://doi.org/10.5267/j.msl.2018.10.012
Le Van, P., & Ho, Y. H. (2023). Independent Board Members and Corporate Financial Performance: The Mediating of Environmental, Social, and Governance Pillars in Taiwan. https://doi.org/10.20944/preprints202308.1542.v1
Lu, K., Onuk, C. B., Xia, Y., & Zhang, J. (2025). ESG ratings and financial performance in the global hospitality industry. Journal of Risk and Financial Management, 18(1), 24. https://doi.org/10.3390/jrfm18010024
Murti, C. D. (2023). What is Known About Environmental Cost Accounting? Systematic Literature Review. Journal of Accounting and Investment, 24(1), 84-100. https://doi.org/10.18196/jai.v24i1.16180
Nian, H., & Said, F. F. (2025). The impact of ESG on firm risk and financial performance: a systematic literature review. Journal of Scientometric Research, 13(3s), s144-s155. http://dx.doi.org/10.5530/jscires.20041187
Noor, A., Hassan, R., Fortea, C., & Antohi, V. M. (2025). A Greener Paradigm Shift: The Moderating Role of Board Independence in Sustainability Reporting. Sustainability, 17(11), 4776. https://doi.org/10.3390/su17114776
Nuzula, N., F. (2019). Does environmental cost affect japanese firms’ performance?. International Journal of Professional Business Review, 4 (1), 14–21. https://doi.org/10.26668/businessreview/2019.v4i1.105
Pham, V. L., & Ho, Y. H. (2024). Independent Board Members and Financial Performance: ESG Mediation in Taiwan. Sustainability, 16(16), 6836. https://doi.org/10.3390/su16166836
Saini, M., Dhingra, B., & Yadav, M. (2023). ESG risk and financial performance of the Indian financial firms. International Journal of Governance and Financial Intermediation, 1(4), 304-314. https://doi.org/10.1504/IJGFI.2023.131480
Tran, H. T., Pham, H. S. T., & Doan, H. Q. (2025). Agency problem-a missing link between corporate social responsibility reporting and firm performance. International Journal of Business Governance and Ethics, 19(1), 112-130. https://doi.org/10.1504/IJBGE.2025.142914
Xie, J., Nozawa, W., Yagi, M., Fujii, H., & Managi, S. (2019). Do Environmental, Social, And Governance Activities Improve Corporate Financial Performance?. Business Strategy And The Environment, 28(2), 286-300. Https://Doi.Org/10.1002/Bse.2224
Downloads
- 7 64
Published
Issue
Section
License
Copyright (c) 2025 Nurul Mustafida, Grace Yosephina
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in Research in Management and Accounting (RIMA).
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
Indexed by:
