FROM CARBON EXPOSURE TO RISK MITIGATION:  THE STRATEGIC ROLE OF ESG PERFORMANCE

Isnaini Nuzula Agustin; Willim Raymond; Mawadah Badriatul

doi:10.29303/distribusi.v14i2.709

Authors

Isnaini Nuzula Agustin Universitas Internasional Batam
Willim Raymond Universitas Internasional Batam
Mawadah Badriatul Universitas Internasional Batam

DOI:

https://doi.org/10.29303/distribusi.v14i2.709

Keywords:

Carbon Risk, ESG Performance, Firm Risk, Idiosyncratic Risk, Systematic Risk

Abstract

Indonesia's economic growth has been closely linked to carbon risk over the past few decades, which has posed a threat to market risks. Although Indonesia has recently viewed carbon risk as a threat, government regulations and policies can influence fluctuations in firm stock performance. Therefore, Environmental, Social, and Governance (ESG) is a moderating variable that can mitigate this issue. Using panel data consisting of 389 firm-year observations from 71 companies listed on the Indonesia Stock Exchange, this study distinguishes the impact of carbon emissions on two firm risk dimensions: idiosyncratic risk and systematic risk. The findings indicate that carbon risk significantly influences both idiosyncratic risk and systematic risk in the baseline model. Furthermore, ESG performance has a weakening effect on the relationship between Carbon Risk and systematic risk. This demonstrates the important role of ESG performance indicators in mitigating corporate risk at the macro level. These results emphasize the role of ESG performance not only as a measure of regulatory compliance but also as an important safeguard for companies facing low-carbon transitions in the Indonesian capital market.

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