The Impact of ESG Principles Implementation on Risk Management Effectiveness in the Banking Sector

Hilyati Zikriani; Nur Fatwa; Faza Fatiyurrobbany; Lokot Zein Nasution; Nova Rini

doi:10.59890/ijir.v3i2.338

Authors

Hilyati Zikriani Universitas Indonesia
Nur Fatwa Universitas Indonesia
Faza Fatiyurrobbany Universitas Indonesia
Lokot Zein Nasution Badan Riset Inovasi Nasional
Nova Rini Universitas Teknologi Muhamadiyah

DOI:

https://doi.org/10.59890/ijir.v3i2.338

Keywords:

IDXESGL, Risk Management, Banking

Abstract

This study was conducted to determine the effect of ESG principle implementation on Risk Management Effectiveness in the banking sector in Indonesia, listed on the Indonesia Stock Exchange for the 2022-2023 period. Using the purposive sampling method, 36 banking sector financial companies that published IDXESGL in 2022-2023 were selected. The analytical methods used include descriptive analysis, classical assumption tests, and hypothesis testing with linear regression. The results indicate that the implementation of ESG principles has a positive and significant effect on risk management effectiveness in the banking sector. Companies with a low ESG Risk Rating tend to have better risk management practices, being more proactive in identifying, measuring, and managing risks related to ESG factors, such as environmental, social, and governance risks, allowing them to mitigate the negative impacts of these risks on company performance. Additionally, companies with a low ESG Risk Rating tend to have higher ROA and ROE, indicating their ability to generate better profits by managing risks effectively, and lower NPL, demonstrating better asset quality and lower credit risk

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