THIS IS WHY WE LEAD: EXPLORING ESG, GENDER DYNAMICS AND MARKET PERFORMANCE IN INDONESIA

Abstract

This paper examines the impact of gender diversity on corporate boards and its effects on ESG performance in Indonesian companies. It highlights the potential benefits of increased diversity in enhancing corporate governance and financial outcomes. The study addresses an increasingly recognized issue: the influence of gender diversity in corporate boards, particularly in emerging markets. In these contexts, diversity can lead to more balanced perspectives, improved risk management, and better alignment with ESG standards. The central question explored in this research is how gender diversity on corporate boards affects ESG risk and financial performance. Unlike existing studies that often generalize findings from developed markets, this paper focuses on Indonesia, providing unique insights relevant to emerging market literature. Using statistical analysis of ESG risk data, gender diversity metrics, and financial performance indicators across various industries in Indonesia, this study takes a sector-specific approach to understanding ESG impacts. The analysis demonstrates a significant negative relationship between board gender diversity and ESG risk, indicating that a higher proportion of women on boards is associated with lower ESG risk. This outcome reflects enhanced decision-making and ethical oversight. Moreover, the analysis reveals that industry classification significantly influences ESG risk. Sectors such as energy and materials show heightened risks due to their inherent environmental challenges, while lower-risk sectors like technology tend to perform better on ESG measures. Although ESG risk does not appear to impact overall financial performance significantly, it does show a positive association with stock performance. This suggests that investors may favor companies with higher ESG risks, anticipating future improvements in their ESG metrics. These findings imply that board gender diversity can positively impact corporate ESG outcomes in emerging markets. However, this effect does not directly translate to improved financial performance, possibly due to the high initial costs and delayed benefits of implementing ESG initiatives. The study concludes that board gender diversity can enhance corporate governance and attract socially responsible investors, particularly in high-risk sectors, and emphasizes the need for regulatory support to promote diversity, offering valuable insights for policymakers and investors in emerging markets.