The Effect of ESG Risk Rating on Investment Decisions in IDX ESG Leaders
DOI:
https://doi.org/10.33830/jfba.v6i1.14722.2026Keywords:
ESG Risk Rating, Firm Value, Market Capitalization, Stock Return, IDX ESG LeadersAbstract
This study examines the effect of ESG Risk Rating on investment decisions, proxied by firm value, market capitalization, and stock return, in companies listed in the IDX ESG Leaders index during 2022–2024. While ESG is theoretically expected to influence investor decisions through signaling mechanisms, empirical evidence remains inconclusive, particularly in emerging markets. Existing studies largely focus on broad market samples, with limited attention to ESG-screened indices such as IDX ESG Leaders, which are expected to exhibit stronger ESG signaling effects. This study addresses this gap by focusing specifically on ESG Leaders firms in Indonesia, providing a more context-specific analysis of whether ESG risk information is incorporated into investor decision-making. Using panel data regression, the findings consistently show no significant effect of ESG Risk Rating across all proxies of investment decisions. These findings highlight a contradiction between theoretical expectations and actual market behavior, suggesting that ESG signals may not yet function as value-relevant information in the Indonesian capital market. Methodologically, this study contributes by employing multiple proxies of investment decisions to capture both market valuation and investor response more comprehensively. Practically, the findings imply that regulators need to strengthen ESG disclosure standards, while companies must improve the credibility of sustainability reporting to enhance investor trust.
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