Do Investors Value Environmental Responsibility? Evidence from Indonesia’s Energy Sector

Abstract

A company’s value serves as a key indicator of investor confidence and signals how the market views its prospects. To uphold this value, businesses need to find a middle ground that considers economic, social, and environmental factors. This study explores the influence of green accounting, carbon emission disclosure, and leverage on firm value among Indonesian energy firms, using profitability and company size as control variables. A total of 41 IDX-listed companies were selected throughout the 2020-2024 period using purposive sampling. The research relies on secondary data drawn from financial statements and annual reports, and employs panel data regression analysis using the Fixed Effects Model (FEM) as the optimal model selected. The model demonstrates strong explanatory power, as evidenced by an R-squared value of 94%, suggesting that the included independent variables largely capture changes in firm value. The novelty of this study lies in the specificity of the energy sector as the context for Indonesia’s carbon regulatory transition, as well as the comprehensiveness of the control variables used to analyze market responses in greater depth. The adoption of green accounting unexpectedly exerts a negative influence on firm value. It appears that the market still views environmental allocations as operational burdens that erode financial efficiency, rather than as strategic long-term investments. Meanwhile, carbon emission disclosures and leverage levels have proven not to be primary indicators for investors when assessing a firm’s worth. This suggests that market participants in Indonesia remain pragmatic, having not yet fully integrated environmental issues into their core investment strategies. Consequently, management must be more strategic in budgeting for environmental costs to ensure these policies do not inadvertently undermine the company’s public valuation.