Title:
Can ESG Performance Reduce Financial Distress? The Mediating Role of Firm Age in Indonesian Energy Companies

Authors:
Lanto Miriatin Amali, Hamka, Selvi, Indonesia

Abstract:

The study aims to analyze the effect of Environmental, Social, and Governance (ESG) performance in financial distress and to examine the role of firm age as a mediating variable among energy sector companies listed on the Indonesia Stock Exchange (IDX). The study employs a quantitative approach using secondary data obtained from companies’ annual reports and sustainability reports. The research sample consists of 51 companies with 102 observations. Data analysis was conducted using Structural Equation Modeling-Partial Least Squares (SEM-PLS) through structural model testing and path analysis. The results show that ESG performance has a path coefficient of 0,165 for Firm Age, indicating a postive relationship; however, this relationship does not show a significant effect. The findings indicate that ESG performance during the observation period does not directly determine firm age, as firm age is a historical characteristic that has been established since the company’s inception. Furthermore, Firm Age has a coefficient of -0,071 with respect to Financial Distress, indicating a negative relationship; thus, an increase in firm age tends to be associated with a decrease in the level of financial distress, although the strenght of this relationship is relatively weak. ESG performance also shows a coefficient of 0,263 with respect to Financial Distress as a direct effect. Meanwhile, the indirect effect of ESG performance on Financial Distress through Firm Age is -0,012, derived from the product of the path coefficients 0,165 x -0,071. The research findings imply that a company’s historical characteristics must be considered when understanding the relationship between ESG performance and financial distress in Indonesian energy companies. 

DOI: https://doi.org/10.51505/IJEBMR.2026.11013