Green finance and governance: The effect of climate change

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This study aims to investigate the implementation of climate change policy, governance practices, and green financing and the impact of environment, social, and governance (ESG), specifically on the environment, which includes emissions and climate change policy on stock price and firm’s profitability. Qualitative and quantitative methods are employed. An in-depth interview is conducted with nine non-listed firms across Sumatera chosen based on the most significant emissions contribution in Sumatera for the qualitative approach. Furthermore, this research covers green finance variables, including financing spent to finance investments that can reduce carbon levels. An ordinary least square (OLS) is employed for the quantitative analysis. The observations are listed banks on Indonesia Stock Exchange. Eight banks reported ESG during the observation period from 2002 to 2021. The result reveals that ESG, such as environmental, resource use, innovation, and emission policy and practice, positively and significantly influence stock price and profitability which is consistent with Nawaz et al. (2021). This might indicate that ESG are important, as the investors observe. The choice of resources used, innovation in the product/services concerning environmental factors, environmental investment, and climate change action are crucial in affecting the stock price as one of the indicators of investors’ sentiment. In addition, this also indicates that the greater the company focuses on the environment, the higher the profitability and the reinvestment rate.

Keywords: Climate Change, Green Financing, Environment, Social, and Governance (ESG), Profitability

Authors’ individual contribution: Conceptualization — A.B. and F.F.; Methodology — A.B. and F.F.; Writing — Original Draft — A.B. and F.F.; Writing — Review & Editing — A.B., F.F., and L.A.; Supervision — A.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G20, G32, G34

Received: 04.01.2023
Accepted: 02.01.2024
Published online: 04.01.2024

How to cite this paper: Basyith, A., Fauzi, F., & Agusria, L. (2024). Green finance and governance: The effect of climate change. Corporate & Business Strategy Review, 5(1), 16–29. https://doi.org/10.22495/cbsrv5i1art2