Environmental, Social, and Governance (ESG) and Their Impact on Corporate Competitiveness, Mediated by Financial Performance

Abstract

This study analyzes the effect of Environmental, Social, and Governance (ESG) on corporate competitiveness with financial performance as a mediating variable in banking companies listed on the Indonesia Stock Exchange for the period 2021–2025. This study is motivated by the growing attention to sustainable business practices and the importance of ESG as part of corporate strategy in enhancing corporate value. The research sample was determined using purposive sampling, resulting in 17 banking companies that met the study criteria. The analysis method employed was Partial Least Squares-Structural Equation Modeling (PLS-SEM) using the SmartPLS software. ESG variables were measured based on Global Reporting Initiative (GRI) indicators; competitiveness was measured using market share; while financial performance was measured through Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). The results indicate that ESG does not have a significant effect on corporate competitiveness and has a weak influence on financial performance. Financial performance has a positive and significant effect on a company’s competitiveness. Financial performance does not mediate the effect of ESG on a company’s competitiveness. These findings suggest that the competitiveness of banking companies is still more influenced by internal fundamental factors, particularly financial performance, than by ESG implementation. This study implies that companies need to strategically integrate ESG to create long-term added value and competitive advantage.