The Impact of ESG Disclosure and Corporate Risk Management on Indonesian Banks’ Financial Performance

Purpose: This study aims to examine the effect of Environmental, Social, and Governance (ESG) disclosure and Enterprise Risk Management (ERM) disclosure on the financial performance of banking companies listed on the Indonesia Stock Exchange (IDX) during the 2022–2024 period. 

Research Methodology: This study employs a quantitative approach using secondary data from annual and sustainability reports of 27 banking companies listed on the IDX during 2022–2024. ESG and ERM disclosures were measured using GRI 2021 and COSO ERM frameworks, respectively, and analyzed using panel data regression with the Random Effect Model (REM). 

Results: The results show that ESG disclosure has a negative and significant effect on financial performance, indicating that ESG implementation and disclosure may increase operational costs and reduce short-term profitability. Meanwhile, ERM disclosure has a positive and significant effect on financial performance, demonstrating that effective risk management enhances operational efficiency and reduces potential losses. 
Conclusions: The study concludes that ERM contributes to improving banking financial performance, whereas ESG disclosure requires a longer period to generate financial benefits. 

Limitations: This study is limited by the observation period and the low explanatory power of the model, suggesting that other factors may influence financial performance. 

Contributions: This study contributes to the literature by integrating ESG and ERM disclosure into a financial performance model and providing insights for banking managers, regulators, and stakeholders regarding sustainability and risk management practices.