The limited influence of institutional ownership on environmental, social, governance, and financial outcomes

Download This Article

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

Abstract

The increasing global emphasis on environmental, social, and governance (ESG) practices has highlighted the critical role of institutional investors in shaping corporate sustainability strategies. Institutional investors, due to their significant ownership stakes and governance expertise, act as catalysts for enhancing ESG performance through shareholder activism (Velte, 2020; Wang, 2023). However, their influence varies significantly across contexts, particularly in emerging markets like Indonesia, where ESG disclosure remains largely voluntary and regulatory frameworks are still evolving (Ellili, 2022; Lubis & Rokhim, 2021). This study investigates the relationship between institutional ownership, ESG performance, and financial outcomes in Indonesian listed companies. Using a quantitative approach, it analyzes 705 non-financial firms listed on the Indonesia Stock Exchange (IDX) in 2022. The findings reveal that institutional ownership does not significantly influence ESG performance. This may suggest that institutional investors prioritize short-term gains over long-term sustainability and that their influence can be moderated by regulatory and firm-level factors. However, ESG performance is positively associated with financial performance. Despite this, ESG does not significantly moderate the relationship between institutional ownership and financial outcomes. These results indicate that attracting institutional investors may not automatically translate into better ESG practices or improved financial outcomes. To the best of our knowledge, this study provides the first empirical insight into the complex interaction between institutional ownership, ESG, and financial outcomes within the Indonesian capital market, expanding the literature on sustainable finance in emerging markets.

Keywords: Institutional Ownership, ESG, Financial Outcomes, Indonesia, Listed Companies, Sustainable Growth

Authors’ individual contribution: Conceptualization — G.M.Z.; Methodology — G.M.Z. and T.S.L.; Formal Analysis — G.M.Z. and T.S.L.; Data Curation — H.K., D.K.R., A.M.M., and S.N.; Writing — Original Draft — G.M.Z.; Writing — Review & Editing — T.S.L.; Supervision — W.C.H.

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

JEL Classification: G32, G34, L25, M14, O16

Received: 23.01.2025
Revised: 21.05.2025; 09.06.2025; 22.09.2025
Accepted: 29.09.2025
Published online: 01.10.2025

How to cite this paper: Zairin, G. M., Lim, T. S., Khairunnisa, H., Respati, D. K., Musyaffi, A. M., Nurmalita, S., & Hoo, W. C. (2025). The limited influence of institutional ownership on environmental, social, governance, and financial outcomes [Special issue]. Corporate Governance and Sustainability Review, 9(3), 242–252. https://doi.org/10.22495/cgsrv9i3sip5