Environmental, Social, and Governance Disclosures, Green Chief Executive Officers, and Sustainable Value of Enterprises in High Environmental Risk Industries

Environmental, Social, and Governance (ESG) criteria have transitioned from voluntary corporate social responsibility (CSR) initiatives to strategic imperatives, particularly for firms operating in high environmental-risk sectors. Energy, mining, and basic materials sectors face unprecedented institutional scrutiny and regulatory pressure regarding their carbon footprint and ecological impact. For these carbon-intensive entities, ESG disclosure is no longer merely a communication strategy to gain stakeholder legitimacy [1]; it is a fundamental survival mechanism that directly dictates long-term competitiveness, cost of capital, and firm valuation in the eyes of global investors [2, 3]. Sound ESG execution helps reduce risk, enhance operational efficiency and create sustained competitive differentiations. ESG disclosure acts as a strategic communication strategy and ensures the development of unity and legitimacy among stakeholders [1], consequently, ensuring the vital resources towards to organizations is efficiently fulfilled [4]. Furthermore, if consumers see and respect an organization’s commitment to sustainability they are more likely to exhibit brand loyalty which would result in higher profits and revenue [5].

The connection among ESG disclosures and firms’ value is theoretically ambiguous. From an agency theory perspectives, environmental disclosure may represent an additional compliance cost that diverts managerial resources from value-maximising activities [6, 7]. Within an agency framework, ESG engagement can intensify principal-agent conflicts when managers prioritize personal interests over organizational objectives. Divergences between managerial incentives and shareholder wealth maximization may encourage managers to divert resources away from ESG initiatives or allocate funds to preferred projects that enhance private benefits rather than sustainable value [8]. CSR and related ESG activities may reflect managerial opportunism rather than value creation [9]. From this agency perspective, ESG engagement may therefore represent an inefficient allocation of corporate resources.

By contrast, stakeholder theory offers a broader governance framework based on the premise that companies have responsibilities not only to shareholders but also to other stakeholders including employees, suppliers and customers as well as society more broadly. Freeman [10] argued that organizations are capable of creating sustainable and long-term value in order to sustainably maintain stakeholder interests. Thus, from this point of view, ESG practice strengthens legitimacy and increases stakeholder confidence through a long-term value. Companies that take the initiative to disclose their ESG information will accumulate reputational capital and find more talented human resources [11], thereby enhancing sustainable value. Moreover, it has been found that ESG disclosure promotes corporate innovation by lowering financing costs [12] and by gaining access to government support and subsidies. Transparency in ESG reporting also helps to reduce the information asymmetry between companies and investors, resulting in higher company valuations, lower capital costs, and reduced financial risks [5]. Aboud and Diab [13] also backed this argument and note that companies included in ESG indices usually perform better than their counterparts.

Although the views of agency theory and stakeholder theory point out the complicated connection within ESG disclosures and sustainable value, institutional reporting is generally insufficient for investors to distinguish between real sustainability initiatives and mere greenwashing. This study addresses an important empirical issue by incorporating green chief executive officer (CEO) into this market uncertainty and exploring how it uniquely influences sustainable value. According to the upper echelons theory, strategic decisions both reflect and result from the cognitive values, experience, and leadership style of the executives within an organization. A green CEO therefore serves as a clear signal to the market about the authenticity of a firm’s environmental policy [14]. In Indonesia, a green CEO designation is given to leaders who are evaluated along three key criteria: having a vision and mission focused on sustainable business, acting in an environmentally friendly way (through initiatives and activities aimed at mitigating environmental degradation), and being committed in a green manner (by formulating strategies and policies that balance operational goals with environmental integrity) [15].

However, while executive characteristics such as a green CEO independently drives valuation, not all ESG disclosures are created equal in terms of their ability to be capitalized into sustainable value. Instead, it is closely contingent on the effectiveness of the overall corporate governance system that governs executive decision making and strategy execution. Governance frameworks are monitoring and counsels mechanisms that align the interests of managers with those of stakeholders/shareholders to make ESG initiatives credible and operable. Gender diversity in this context is an important governance mechanism as well which can shape the manner in which ESG indices are interpreted, prioritized and administered. Having women on boards increases the value of boardroom discussions by diversifying opinions and quality of strategic decisions [16-19], especially in areas related to social responsibility and stakeholder engagement [20]. Yet, strides in gender diversity remain limited globally (especially in the global South), with strong social norms and institutional gate-keeping that bars women’s access to strategic positions [18]. Wasiuzzaman and Subramaniam [21] also found that the addition of women in a board is positively related to good ESG performances in developed countries although this connection is less noticeable in emerging economies. Although researchers have devoted significant interest to the effects of diverse gender on ESG, scarce empirical work has analyzed its moderating influence in the relation among ESG practices and sustainable value. With the aim of addressing this research gap, it is the purpose of this study to explore the impact of ESG index on sustainable value and whether board gender diversity moderates this connection.

This study offers two primary contributions to literature. First, it disentangles the drivers of sustainable value in high-risk industries by simultaneously examining the direct impact of ESG disclosure and green CEO presence. Second, it evaluates the moderating influences of gender diversity on this interrelation, offering novel insights into how gender composition at the board level may either reinforce or attenuate the influence of ESG practices on sustainable value. Drawing on panel data from high environmental risk industries entities on Indonesian stock market from 2012 to 2021, the analysis yields empirical findings that contributes to the academic discourse and offers actionable recommendations for decision-makers, regulators, and corporate decision-makers in developing markets.

The structure of this article is arranged as follows: Section 2 performs a literature review followed by research hypothesis development. Section 3 clarifies research methodology where it presents the sampling methodology as well as measurement of variables and the selected empirical model design. Section 4 reports the empirical findings from the data analysis. Section 5 discusses the results, while Section 6 summarized the study.

Table 1. Variable measurements

The dependent variable in the regression models is Tobin’s Q (TOBINSQ). Similar models were estimated with PBV to test the robustness of the tests.

$ \text {TOBINSQ}_{i, t}=\alpha_{i, t}+\beta_1 \text {ESG}_{i, t}+\beta_2 \text {GREEN_CEO}_{i, t}+\beta_3 \text {SIZE}_{i, t}+\beta_4 \text {SG}_{i, t}+\varepsilon_{i, t} $                  (1)

$ \text {TOBINSQ}_{i, t}=\alpha_{i, t}+\beta_1 \text {ESG}_{i, t}+\beta_2 \text {GREEN_CEO}_{i, t}+\beta_3 \text {SIZE}_{i, t}+\beta_4 \text {SG}_{i, t}+\beta_5 \text {BGD}_{i, t}+\varepsilon_{i, t} $                (2)

$ \text {TOBINSQ}_{i, t}=\alpha_{i, t}+\beta_1 \text {ESG}_{i, t}+\beta_2 \text {GREEN_CEO}_{i, t}+\beta_3 \text {SIZE}_{i, t}+\beta_4 \text {SG}_{i, t}+\beta_5 \text {BGD}_{i, t}+\beta_6 \text {ESG} \times \text {BGD}_{i, t}+\varepsilon_{i, t} $              (3)

$ \text {TOBINSQ}_{i, t}=\alpha_{i, t}+\beta_1 \text {ESG}_{i, t}+\beta_2 \text {GREEN_CEO}_{i, t}+\beta_3 \text {SIZE}_{i, t}+\beta_4 \text {SG}_{i, t}+\beta_5 \text {IGD}_{i, t}+\varepsilon_{i, t} $             (4)

$ \text {TOBINSQ}_{i, t}=\alpha_{i, t}+\beta_1 \text {ESG}_{i, t}+\beta_2 \text {GREEN_CEO}_{i, t}+\beta_3 \text {SIZE}_{i, t}+\beta_4 \text {SG}_{i, t}+\beta_5 \text {IGD}_{i, t}+\beta_6 \text {ESG}{\times} \text {IGD}_{i, t}+\varepsilon_{i, t} $                (5)

Eqs. (1)-(5) directly operationalize the three hypotheses. Model (1) is the baseline specification testing H1 (ESG disclosure positively affects sustainable value) and H2 (green CEO presence positively affects sustainable value). Models (2) and (4) introduce, respectively, the direct effects of aggregate BGD and independent female commissioners (IGD) as preliminary specifications prior to testing moderation. Models (3) and (5) test H3 (Gender diversity moderates the ESG-sustainable value relationship) through the interaction terms ESG×BGD and ESG×IGD.

Robustness was assessed by employing an alternative proxy for sustainable value, PBV, in addition to Tobin’s Q. PBV captures market-based perceptions of equity value and is sensitive to shifts in investor sentiment driven by non-financial disclosures such as ESG. Including PBV as a dependent variable ensures that findings are not limited to a single financial metric. To control heteroskedasticity and autocorrelation in panel data, clustered robust standard errors were applied across models.

The results of this study proved that the ESG disclosure consistently has a positive and significant impact to sustainable value at 1% level from Tobin Q or PBV. This result is also robust to all model specifications, which is in accordance with the previous literature [27, 46]. Factors contributing to the importance of ESG in these emerging economies include growing attention from institutional investors, awareness among stakeholders and regulatory enforcement for responsible corporate behavior. ESG disclosures enhance corporate reputation and perceived transparency, which are two crucial elements for fostering investor confidence in capital market performance [47, 48]. ESG in this sense functions not only as a normative and symbolic commitment, but also as a strategic tool for achieving differentiation from competitors in the market. Firms that voluntarily disclose sustainability performance are also seen to be more forward looking and prepared to cope with long-term risks, especially adverse environmental and social impacts. Such assurance increases investor confidence and helps increase sustainable value.

These results theoretically align more closely with the stakeholder theory. Stakeholder theory is based on the premise that firms must be accountable and coexist successfully with multiple categories of stakeholders (customers, regulators, etc.) as a means of ever maintaining their right to exist over time. For contrast, agency theory posits that CSR and broader ESG movements may articulate managerial self-interest rather than maximization of shareholder value [9]. Thus, as per agency’s perspective, ESG practices are usually considered as rent-displaying expenses and are inconsistent with wealth-maximization objective of shareholders. Thus, ESG capability is a strategic asset that firms can leverage to attain higher levels of trust, brand value and risk prevention, defined as superior market-based performance.

Furthermore, integrating the green CEO variable broadens the corporate governance perspective through Upper Echelons Theory, wherein the characteristics and value orientations of top executives guide the organization’s strategic direction. The positive market response to the green CEO figure indicates that market evaluation extends beyond the quality of sustainability reporting to focus directly on the central actors behind strategy implementation. Executive characteristics, environmental experience, and sustainability orientation substantially shape the firm’s ESG quality [49], while simultaneously influencing market perceptions of sustainable value. According to signaling theory, external awards give a positive signal to investors and enhance the credibility of ESG commitments among investors. A CEO’s green track record or orientation sends a robust signal to the market that sustainability strategies are integrated at the highest level of strategic decision-making rather than acting as mere symbolic compliance. Environmental experience at the executive tier directly drives the allocation of green investments and fortifies the architecture of the organization’s sustainability strategies [14]. Executives with sustainability-oriented managerial capacity elicit positive stakeholder responses due to their perceived higher competence in sustaining long-term business continuity and credibly managing ESG risks. The transmission of this green leadership signal is empirically captured through the appreciation of market-based valuation metrics [32].

The lack of a robust moderating effect for gender diversity carries a theoretical implication. While initial baseline models show an attenuating relationship, the non-persistence of this effect suggests that structural board demographics alone do not universally dictate how ESG strategies are valued by the market. The critical-mass perspective provides a theoretical explanation for why a gender-diversity measure may not generate a stable moderation effect. Prior study suggests that the influence of women on boards may depend on whether their representation reaches a sufficient level to move beyond token participation and facilitate substantive influence in board deliberations [50, 51]. The limited representation of female independent commissioners in the high environmental-risk sector, as reflected in the low average IGD value of 0.0291, indicates that firms fall far short of achieving a critical mass. Without reaching a critical mass, minority female commissioners may lack the strategic authority to actively shape or moderate board deliberations on complex ESG investments. Consequently, while ESG disclosures and green CEOs emit strong signals, gender diversity has not yet matured into a structural catalyst capable of amplifying these signals. However, the present study does not directly test a critical-mass threshold. Therefore, this explanation should be regarded as a plausible interpretation rather than an empirically established mechanism. Similarly, the Blau index captures board-level gender heterogeneity but does not directly measure the substantive authority or strategic influence of female commissioners. These considerations suggest that heterogeneous or threshold-dependent effects may be obscured by a linear interaction specification.