The impact of ESG strategy on financial performance: The moderating role of directors with overseas background

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Abstract

The purpose of this study is to explore how environmental, social, and governance (ESG) performance relates to financial performance, specifically examining the moderating effect of directors with overseas backgrounds. The Bloomberg database was used to gather data from 56 firms that were listed between 2018 and 2022 on the Indonesia Stock Exchange (IDX), and Statistical Package for the Social Sciences (SPSS) software was used to do multiple regression analysis. The findings demonstrate that financial performance is significantly positively impacted by ESG performance, which is strengthened by directors’ overseas backgrounds. The study also reveals that higher levels of ESG performance can enhance profitability (Michael et al., 2023). Furthermore, financial performance is positively impacted by environmental performance, but social and governance performance were found to have no discernible positive effects on financial performance. The study’s conclusions provide insightful information for assessing how a firm’s financial success is affected by its ESG performance, the findings can also be used to inform the formation of more scientifically designed directorships and the involvement of directors with overseas backgrounds in corporate governance.

Keywords: ESG Performance, Financial Performance, Directors Overseas Background, Corporate Governance

Authors’ individual contribution: Conceptualization — R.Y. and L.; Investigation — R.Y.; Resources — R.Y.; Writing — R.Y. and L.

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

JEL Classification: G30, G34, G3, M14, Q56

Received: 15.11.2023
Revised: 21.02.2024; 02.04.2024; 31.01.2025
Accepted: 17.02.2025
Published online: 20.02.2025

How to cite this paper: Yang, R., & Lindrianasari. (2025). The impact of ESG strategy on financial performance: The moderating role of directors with overseas background [Special issue]. Corporate & Business Strategy Review, 6(1), 276–285. https://doi.org/10.22495/cbsrv6i1siart4