The Role of ESG Committee on Indonesian Companies in Promoting Sustainable Practice to Creditors: Symbolic or Substantive?

Abstract

This study investigates whether the presence of an ESG committee in promoting sustainable practices is symbolic or substantive to creditors when setting costs. With unbalanced panel data, the study used 1518 company-year observations from non-financial firms listed on the IDX period 2018 to 2023. The hypothesis testing of this study was conducted by using moderated regression analysis (MRA). Hypothesis testing using a fixed effects model indicates that ESG disclosure can significantly lower the cost of debt. The role of the ESG committee is to act as a quasi-moderator for the relationship between ESG disclosure and the cost of debt. While the presence of an ESG committee can significantly reduce the cost of debt, the committee itself weakens the relationship between ESG disclosure and the cost of debt. Therefore, these findings suggest that the role of the ESG committee in promoting ESG disclosure to creditors in determining the cost of debt is becoming more substantive, moving away from a merely symbolic role that focuses on maintaining the company’s reputation and strengthening substantive management to control governance risk. The results of this study are expected to contribute to formulating policies that strengthen the role of ESG committees in improving corporate governance and sustainability practices by providing stakeholders with important and relevant ESG disclosure information for investment and funding decisions.

1. Introduction

The commitment to sustainability in Indonesia has grown rapidly in recent years. Companies in Indonesia are increasingly committed to integrating ESG factors into their operations. The main challenge in implementing ESG in Indonesia is that many companies still lack an understanding of the benefits of ESG and how to implement it effectively. Limited education and training on ESG remain a barrier to improving this understanding among stakeholders. Additionally, the business culture of most Indonesian companies is focused on short-term targets and profitability. Some corporations assume that ESG practices may reduce profits, so they support the lack of commitment from company leaders to drive ESG practices as part of cultural business change. Currently, regulations and policies supporting ESG are relatively weak, hindering companies’ effective implementation of ESG practices. The lack of clarity in ESG standards and reporting makes it difficult for companies to measure their performance objectively and compare it with relevant industry or international standards (IEC, 2024).

One of the Indonesian corporate initiatives that has been taken to strengthen corporate ESG practices is presenting the ESG committee in the corporate governance structure under a supervisory board license. The presence of an ESG committee is expected to enhance the reputation and legitimacy of companies in the eyes of stakeholders. Non-financial public companies in Indonesia are increasingly establishing an ESG committee as part of corporate governance to enhance their sustainability and competitiveness. Substantively, several studies support the effectiveness of ESG committees in promoting ESG practices, but others criticize their existence as a symbolic corporate policy to increase corporate legitimacy among stakeholders. Baraibar-Diez and Odriozola (2019) and Burke et al. (2019) emphasize that ESG committees have the potential to enhance the quality of ESG disclosure and transparency, particularly in their response to non-financial risks. These committees facilitate more focused oversight of environmental and social issues. Velte and Stawinoga (2020) also support that the ESG committee can strengthen the integration of sustainability policy and positively impact long-term performance. In the context of companies in developing countries like Indonesia, findings from Suttipun and Dechthanabodin (2022) indicate that ESG committees help prevent greenwashing and increase accountability. In Indonesia, Fuadah et al. (2022) stated that the ESG committee enhances the quality of sustainable reporting. N. Lee et al. (2023) and Qaderi et al. (2022) further suggest that ESG committees increase the companies ‘efficiency of ESG policy implementation and strengthen companies’ responsiveness to market pressures. Zampone et al. (2024) stated that companies with a strong ESG committee commitment tend to comply highly with international ESG standards. However, Abdullah et al. (2024) provided a more critical finding. They found that the effectiveness of an ESG committee depends on its targeted focus. A focused and competent ESG committee will promote ESG practices. Conversely, a merely symbolic or unfocused committee may have no significant impact or hinder ESG effectiveness. These findings are important in the Indonesian context, where ESG committees are sometimes formed merely to fulfil formal requirements without strengthening their capacity, task orientation, and focus on stakeholder interestsESG committees can significantly influence creditors’ decision-making regarding the cost of debt for non-financial companies in Indonesia by making ESG disclosures more relevant. Macroeconomically, according to the World Bank Group (2024), companies in Indonesia face higher corporate loan rates (averaging 8.52% to 9.54%) compared to Central Bank loan rates (averaging 3.52% to 5.83%). This data indicates that creditors did not comply with the Central Bank’s policy when determining the cost of debt due to a higher perceived credit risk. The presence of the ESG committee will increase the relevance of ESG disclosure in mitigating risk, which will impact the cost of debt.

However, the formation of the ESG committee in Indonesia is an interesting subject for study, as it will be possible to determine whether the ESG committee can promote corporate ESG practices to creditors when determining the cost of debt. This role will establish whether the ESG committee’s existence is merely symbolic or can substantially impact strengthening ESG practices that influence long-term stakeholder decision-making. Conceptually, forming an ESG committee can enhance the credibility of ESG disclosure by distinguishing it from greenwashing and mitigating reputational risks (Abdullah et al., 2024). ESG disclosure protects and enhances long-term social well-being (Gholami et al., 2022). Creditors are more likely to trust companies prioritizing long-term interests (Chen et al., 2023). Creditors will reduce a company’s cost of debt as a form of recognition for companies that implement ESG practices effectively (Mahmoudian et al., 2023). Creditors assess a company’s investments in environmental and social practices as more oriented toward long-term value (Ratajczak & Mikołajewicz, 2021).

This study addresses a gap in previous research. Previous empirical studies have discussed the relationship between operational efficiency (Wang et al., 2023), media coverage (Rong & Kim, 2024), mandatory disclosure requirements (Zhou & Nian, 2024), senior manager political experience and digital transformation (Ji et al., 2024), and ESG practice that can affect debt costs. However, these studies have not discussed the contribution of ESG committees as specialized bodies that formulate and implement corporate ESG policies, thereby improving the relevance of ESG information disclosure for stakeholder decision-making. An ESG committee can enhance a company’s sustainability practices (Abdullah et al., 2024; Baraibar-Diez & Odriozola, 2019; Bifulco et al., 2023; Burke et al., 2019; N. Lee et al., 2023; Qaderi et al., 2022; Suttipun & Dechthanabodin, 2022; Zampone et al., 2024). Specifically, to address this research gap, we need a study to investigate whether ESG committees substantially promote ESG disclosure to mitigate the cost of debt. This study contributes to the development of the existing conceptual framework of the literature, as previous research has not explained how the ESG committee influences the promotion of corporate sustainability practices to creditors when determining the cost of debt. Practically, the interaction between the ESG committee and ESG disclosure can influence creditors in determining the cost of debt. The ESG committee is expected to enhance the quality of disclosing information about the company’s ESG practices and strengthen sustainable governance.

The remainder of the paper is structured into six sections: the Section 2, which reviews literature, the theoretical background, and hypothesis development based on existing literature and relevance theories comprehensively. The Section 3 describes the research design, including the data sources used, the variables defined, and the specification model employed to test the hypotheses in this study. The Section 4 presents the results of the primary empirical analyses, including descriptive statistics, correlation matrices, endogeneity test, robustness test, and hypothesis testing results. The Section 5 delivers a detailed discussion of the findings in light of theoretical expectations. Finally, the Section 6 concludes the main findings, discusses the study’s theoretical and practical implications, acknowledges the limitations of the study, and suggests future research.

2. Theoretical Background and Hypothesis

2.1. Theoretical Background

Potential conflicts of interest between management and stakeholders can influence the disclosure of sustainability information (Eliwa et al., 2021). Without concrete mechanisms, management tends to reduce transparency levels to protect its short-term interests (Khan et al., 2024). This condition aligns with the legitimacy theory, which emphasises that companies use the disclosure of ESG information to gain social legitimacy. This theory encourages companies to implement more extensive reporting practices (Christensen et al., 2021). Corporate legitimacy may be threatened when there is a mismatch between societal expectations and corporate actions, leading to a decline in reputation and public trust (Meutia et al., 2022). In this study, legitimacy theory explains how ESG disclosure serves as a medium for companies to obtain and maintain social legitimacy, particularly from creditors. Relevant and transparent ESG disclosure will shape creditors’ positive perceptions of the company, thereby increasing the company’s credibility and reducing business risk (Gracia & Siregar, 2021). Creditors tend to offer lower borrowing costs to companies with high social responsibility and sustainability commitments (Crossley et al., 2021).

However, institutional theory states that the level of ESG disclosure depends on pressure from stakeholders, such as investors, creditors, regulators, and the public. The external pressures that increasingly demand social responsibility and sustainability encourage companies to implement ESG policies to gain legitimacy from stakeholders, including creditors (Wu et al., 2024). Companies that demonstrate alignment between their actions and socially accepted values and institutionally recognized norms are perceived as more credible, thereby reducing creditors’ risk perceptions and leading to reduced cost of debt (Eliwa et al., 2021). Companies’ adoption of ESG disclosure regulations is not only a business strategy but also a form of adaptation to global norms to reduce market risk (Hernández-Pajares, 2023). Thus, institutional theory provides a strong theoretical framework for understanding how external pressures, whether from social, political, cultural institutions, or global investors, drive companies to adopt ESG disclosure regulations. This theory is relevant for explaining how ESG disclosure can affect the cost of debt, which is an important consideration for creditors.

In this context, the existence of an ESG Committee can serve as a governance mechanism to bridge these two theoretical frameworks. ESG committees not only serve to reduce agency problems by strengthening oversight, but also help companies respond to demands for social legitimacy and stakeholder expectations. Therefore, it is reasonable to assume that ESG committees act as moderating variables, strengthening the relationship between ESG disclosure and debt cost. Previous research (e.g., Abdullah et al., 2024; Bifulco et al., 2023; N. Lee et al., 2023; Velte & Stawinoga, 2020; Zampone et al., 2024) also provides empirical evidence that specific governance mechanisms, such as ESG Committees, can improve the quality of sustainability reporting.

2.2. Hypothesis Development

2.2.1. ESG Disclosure and Cost of Debt

ESG practices are implemented by public companies to maintain their social legitimacy in the eyes of their stakeholders. This involves disclosing ESG information and complying with regulatory requirements (Eliwa et al., 2021; Zhou & Nian, 2024). ESG disclosure demonstrates a company’s long-term commitment to responsible and sustainable business practices (Feng & Wu, 2023). Through ESG disclosure, companies provide additional information beyond traditional financial statements relevant to assessing non-financial risks. This information helps creditors evaluate a company’s credibility, reduce information asymmetry and uncertainty about its operational sustainability, and ultimately reduce the cost of debt (Apergis et al., 2022). By sufficiently disclosing environmental, social, and governance information, companies can allay creditors’ concerns regarding the potential misutilization of funds or managerial risks, thereby improving their reputation (Mahmoudian et al., 2023). A good reputation is associated with high trust from creditors, leading to lower debt costs (Al Barrak et al., 2023; Eliwa et al., 2021). In industries with strict regulations or significant environmental impacts, ESG disclosure has an even more substantial influence on financing decisions (Gigante & Manglaviti, 2022). The impact of ESG disclosure on debt cost can vary depending on the differentiated industry context and creditors’ perceptions and trust in the quality of ESG information. Previous empirical studies have found that a higher level of ESG disclosure is associated with a lower corporate cost of debt (Al Barrak et al., 2023; Aleknevičienė & Stralkutė, 2023; Eliwa et al., 2021; Gracia & Siregar, 2021; Hu & Liang, 2024; Jafar et al., 2024; Zheng & Shen, 2024). Based on this discussion, the following hypothesis is proposed:

H1: 

ESG disclosure negatively affects the cost of debt.

2.2.2. ESG Committee, ESG Disclosure, and Cost of Debt

ESG disclosure is a strategy for companies to maintain their social legitimacy (Z. Zhang et al., 2024). However, it is expected to have substantive value as well as symbolic value, and to be relevant to decision-making. The relevance of ESG disclosure depends heavily on stakeholder trust in the information. Therefore, institutions play a crucial role in promoting transparent and trustworthy ESG practices. One way to make ESG disclosure more relevant for decision-making is to set up an ESG committee. The ESG committee plays an important role in ensuring reliable ESG disclosure by companies. The presence of an ESG Committee will improve and make ESG disclosure more credible, positively impacting creditors’ risk perception (Q. Zhang & Wong, 2022). The ESG Committee ensures that information on ESG disclosures is relevant to decisions (Abdullah et al., 2024). This commitment signals to creditors that the company is serious about implementing ESG practices, not merely complying with regulations. Improved credibility of a company’s ESG disclosures will motivate creditors to provide lower-cost loans (Eliwa et al., 2021). The ESG committee can help the board mitigate reputational risks that affect the company’s operations. They can identify significant environmental or social risks and design effective mitigation strategies (Qaderi et al., 2022). The ESG committee can manage ESG risks in line with the expectations of stakeholders who focus on responsible and sustainable company activities (Abdullah et al., 2024). In the long term, companies that have established an Environmental, Social, and Governance (ESG) committee demonstrate greater stability in risk management. This condition reduces creditors’ perception of risk, lowering the debt cost (Hao, 2024).

The ESG committee enhances accountability and strengthens governance related to ESG issues within the company. They monitor, evaluate, and report on ESG practices and performance regularly. Creditors tend to trust companies with strong corporate governance, including the presence of an ESG committee, as this demonstrates a concrete commitment to implementing sustainable business practices (Zheng & Shen, 2024). Transparently disclosing information about ESG helps creditors assess company risk more accurately, encouraging lower interest rates on loans and significantly reducing the cost of debt.

The ESG committee supports the disclosure and implementation of sustainable ESG policies by building a positive image and reputation for the company in the eyes of the public and creditors. A strong social and environmental responsibility reputation increases company value, reduces reputational risk, and makes the company more attractive to creditors (N. G. Lee et al., 2024). Companies with a solid reputation for environmental, social and governance (ESG) issues can obtain loans at a lower cost because they can better manage risks (Alves & Meneses, 2024). Creditors tend to view companies with an ESG committee as having more mature risk management and strong governance structures related to the company’s commitment to managing ESG issues (Abdullah et al., 2024). Several empirical studies support the notion that the ESG committee can influence ESG disclosure (Abdullah et al., 2024; Baraibar-Diez & Odriozola, 2019; Bifulco et al., 2023; Burke et al., 2019; N. G. Lee et al., 2024; Suttipun & Dechthanabodin, 2022; Velte & Stawinoga, 2020; Zampone et al., 2024). Based on the empirical literature and theoretical discussion, the hypothesis is proposed:

H2: 

The ESG Committee moderates the relationship between ESG disclosure and the cost of debt.

3. Research Design

3.1. Data and Sample Selection

This study includes ESG disclosure scores, the presence of an ESG committee, total assets, net profit, and total debt for non-financial companies listed on the Indonesia Stock Exchange (IDX) period 2018 and 2023. Data was selected from all non-financial companies listed based on the IDX industry classification that published sustainability reports for this period. The financial companies’ industry was excluded from this sample because they are subject to different regulations and disclosure standards than other sectors. Including them in the analysis could introduce bias.

The selection of research samples uses the total purposive sampling method, with all companies, including all companies that met the criteria, where all the data required for the study were available in full. The population in the study consisted of 2221 company-years of observation. Based on the established criteria, 1518 company-years were selected as the research sample. The sample data is shown in

Table 1. Research Sample Selection Process for the Period 2018–2023.

Sample Selection Stage	Number of Observations (Firm-Year)
Public companies listed on the IDX (2018–2023)	4494
Excluded: financial industry	(375)
Excluded: the non-financial industry that did not report sustainability reports	(1898)
Excluded: incomplete data for key variables	(575)
Excluded: outlier observations	(128)
Final sample of the study	1518

and

Table 2. The Number and Percentage of Research Samples for the Period from 2018 to 2023.

No	Code	Industry Category	Total Sample	Percentage Sample
1	A	Energy	177	11.66%
2	B	Basic material	204	13.44%
3	C	Industrial	124	8.17%
4	D	Consumer non-cyclicals	268	17.65%
5	E	Consumer Cyclicals	231	15.22%
6	F	Healthcare	82	5.40%
7	H	Properties & Real Estate	172	11.33%
8	I	Technology	48	3.16%
9	J	Infrastructures	150	9.88%
10	K	Transportation and Logistics	62	4.08%
Total Sample			1518	100%

below.

This study selected non-financial companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2023 because these companies have the most significant percentage in the BEI index and are more active in reporting sustainability reports, making data collection easier. The selection of this period was also based on the enactment of POJK No. 51/POJK.03/2017 on implementing sustainable finance for financial service institutions, issuers, and public companies, which specifically regulates corporate sustainability governance (Supplementary Materials). This regulation has been in effect since 2018, encouraging Indonesian regulators to emphasize sustainability reporting through sustainability reporting requirements for public companies. This study uses unbalanced pooled data. Unbalanced pooled data refers to data where observations are unavailable for all units at every point, often due to missing data or because some units enter or exit the sample during the study period (Kopyrina & Stepanova, 2023). Unbalanced pooled data refers to the type of research design used in statistical analysis and social sciences. In this design, data collection is conducted from various sources with different time frames for different units, integrating data from multiple databases or sources with different information for the same unit (Gonenc & Krasnikova, 2022). Each data set is collected from individuals or entities simultaneously, rather than following the same individuals over time.

3.2. Variable Measurement

3.2.1. Dependent Variable

In this study, the dependent variable is the cost of debt. The cost of debt is the interest rate that a company must pay on its borrowings, including all related costs, such as interest paid to creditors and other expenses incurred when taking on debt. It is usually expressed as a percentage of the company’s total debt. It is calculated by dividing the company’s interest expense by its average total debt. Average debt is calculated by adding the debt at the beginning of the period to the debt at the end, then dividing this sum by two (Eliwa et al., 2021).

3.2.2. Independent Variables

The independent variable used in this study is Environmental, Social, and Governance (ESG) disclosure. This term refers to how companies communicate information about their commitment to environmental, social, and governance issues to stakeholders. It includes annual reports, sustainability reports, and information published on company websites. ESG disclosure aims to provide transparency regarding the company’s sustainability-related activities and policies, thereby enhancing its reputation in the eyes of the public (Eliwa et al., 2021). CESGS uses a systematic methodology to measure ESG disclosure through corporate sustainability reports covering environmental, social, and governance. The assessment of disclosure quality includes completeness, consistency, clarity, and relevance. The Global Reporting Initiative regulates the environmental pillar in 20 main GRI topics, 76 GRI indicators, and 33 GRI sub-indicators. The social pillar covers 22 main GRI topics, 51 GRI indicators, and 39 GRI sub-indicators. The governance pillar covers 36 main GRI topics, 66 GRI indicators, and 33 GRI sub-indicators. ESG Intelligence assigns a dummy value of 1 if a GRI item is disclosed in the disclosure report and zero if the GRI item is not disclosed in the company’s sustainability report. The comparison between disclosure and the items that should be disclosed (index) is called the ESG Disclosure Score (CESGS, 2025). CESGS (2025) measures the ESG disclosure score as follows:

$$\mathrm{ESG}\mathrm{Score}={\displaystyle \frac{\mathrm{E}\mathrm{S}\mathrm{G}\mathrm{D}\mathrm{i}\mathrm{s}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{u}\mathrm{r}\mathrm{e}}{\mathrm{E}\mathrm{S}\mathrm{G}\mathrm{I}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{x}}}$$

3.2.3. Moderating Variables

In this study, the moderating variable is the ESG Committee. This committee is a subcommittee of the board of directors. It may also be referred to as a sustainability, environmental, or public responsibility committee. It is responsible for managing and taking ownership of the company’s ESG issues, assisting the board of directors in carrying out its functions, and providing social and environmental recommendations (Baraibar-Diez & Odriozola, 2019; Burke et al., 2019). In this study, the existence of an ESG committee is measured by the presence or absence of an ESG committee within a company (Suttipun & Dechthanabodin, 2022).

3.2.4. Control Variables

The control variables include many variables associated with firm characteristics, such as financial leverage (LEV), firm size (FSZ), return on assets (ROA), and the interest coverage ratio (ICR). Financial leverage measures the proportion of a company’s debt-financed assets (Gracia & Siregar, 2021). Firm size is measured as the natural logarithm of total assets (Fiana & Endri, 2025). ROA is the net income ratio to total assets (Sandberg et al., 2023). The interest coverage ratio represents the ratio of earnings before interest and taxes to interest expenses (Apergis et al., 2022). A summary of the variables measurement can be seen in

Table 3. Variables Measurement.

Variables	Symbol	Variable Measurement
Dependent Variable
Cost of Debt	COD	Interest expense is divided by average debt (Eliwa et al., 2021)
Independent Variable
Environmental, Social, Governance Disclosure	ESGD	ESG disclosure scores are measured by comparing a company’s level of ESG disclosure against criteria set out in the ESG Index (CESGS, 2025)
Moderating Variable
ESG committee	ESGC	The existence of an ESG committee is measured by the presence or absence of an ESG committee within a company (Suttipun & Dechthanabodin, 2022).
Control Variables
Financial Leverage	LEV	A ratio that measures the proportion of a company’s assets financed by debt (Gracia & Siregar, 2021)
Company Size	FSZ	The natural logarithm (ln) of a company’s total assets (Fiana & Endri, 2025)
Return on Assets	ROA	The ratio of total net profit to total assets (Sandberg et al., 2023)
Interest Coverage Rate	ICR	Total operating income is divided by total interest expense (Apergis et al., 2022)

.

3.3. Model Specification

Multiple linear and moderated regression analyses (MRA) are used to test the hypothesis. The MRA model aims to analyse and test the moderating effect of the ESG committee on the relationship between ESG disclosure and the cost of debt (COD) in non-financial companies listed on the Indonesia Stock Exchange (IDX) between 2018 and 2023. The study employs an EViews 13 regression equation model with unbalanced panel data to test the hypothesis at a significance level of α = 0.05, or 5 per cent. Based on the Chow and Hausman tests, the regression model chosen is the fixed effects model (FEM). This study adopted the MRA model developed by Sharma et al. (1981) for hypothesis testing. The mathematical model developed for this study is formulated as follows:

Model (1)

COD_it = β₀ + β₁ESGD_it + β₂LEV_it + β₃FSZ_it + β₄ROA_it + β₅ICR_it + ε_it

Model (2)

COD_it = β₀ + β₁ESGD_it + β₂ESGC_it + β₃LEV_it + β₄FSZ_it + β₅ROA_it + β₆ICR_it + ε_it

Model (3)

COD_it = β₀ + β₁ESGD_it + β₂ESGC_it + β₃LEV_it + β₄FSZ_it + β₅ROA_it + β₆ICR_it +
β₇ESGD_it*ESGC_it + ε_it

where COD_it is cost of debt of firm committee at time t; ESGD_it is ESG disclosure score of firm committee at time t; ESGC_it is ESG committee of firm committee at time t; FL_it is Financial leverage of firm committee at time t; FSZ_it is Firm size of firm committee at time t; ROA_it is Return on assets of firm committee at time t, ICR_it is The interest coverage ratio of firm committee at time t; ESGD_it*ESGC_it: Interaction between ESG disclosure and ESG Committee of firm committee at time t; ε_it: error term of firm committee at time t.

According to Sharma et al. (1981), the function of the ESG Committee (ESGC) as an independent variable, pure moderator, or quasi-moderator can be determined by examining the coefficients β₂ and β₃ (Model 3). In Model 2, if β₂ is significant, the ESGC acts as an independent variable. This finding suggests that the ESG Committee plays a substantive role in determining the cost of debt for creditors. Conversely, if β₂ is insignificant, the ESG committee is merely symbolic. This term suggests that the ESG committee is not crucial for creditors. In Model 3, if both β₂ and β₃ are significant, the ESG committee acts as a quasi-moderating variable. If β₂ is insignificant and β₃ is significant, then ESGC acts as a pure moderator. This term indicates that the ESG committee is substantive.

To test the moderating effect of ESGC on the relationship between ESGD and CoD, we can compare the signs of β₁ and β₃ in Model 3. If β₁ and β₃ are both negative, the ESG committee strengthens the relationship between ESG disclosure and the cost of debt. Conversely, if β₁ is negative and β₃ is positive, the presence of the ESG committee would weaken the relationship between ESG disclosure and cost of debt. Based on this, we can determine whether the ESG committee is substantive or symbolic in promoting ESG disclosure to creditors when determining the cost of debt. This term is based on whether the ESG committee can directly influence the cost of debt (Model 2) and moderate the relationship between ESG disclosure and debt (Model 3).

4. Results

4.1. Descriptive Statistics

These descriptive statistics provide an overview of the characteristics of the data, including the average, minimum, maximum and standard deviation of each variable. The data gives an initial idea of the patterns and distribution of the data. The variables considered are the cost of debt (COD), environmental, social, and governance (ESG) disclosure (ESGD), leverage (LEV), firm size (FSZ), return on assets (ROA), and the presence of an ESG committee (ESGC).

Table 4. Descriptive Statistics.

Variable	Obsv	Minimum	Maximum	Mean	Deviation Std
COD	1518	0.010	0.139	0.048	0.024
ESGD	1518	0.025	1.000	0.434	0.190
ESGC	1518	0.000	1.000	0.108	0.311
LEV	1518	0.048	0.797	0.413	0.205
FSZ	1518	23.388	33.730	28.825	1.987
ROA	1518	−0.587	0.520	0.037	0.092
ICR	1518	−55.891	605.603	15.588	50.083

Note: This table presents the descriptive statistics for the variables used in this manuscript. The data covers a sample of non-financial companies listed on the Indonesia Stock Exchange between 2018 and 2023. It contains data with 1518 company-year observations in total. The variable definitions can be found in Table 3.

and

Table 5. Pearson Correlation.

	COD	ESGD	ESGC	LEV	FSZ	ROA	ICR
COD	1
ESGD	−0.125 (**)	1
ESGC	−0.098 (**)	0.309 (**)	1
LEV	0.050	0.109 (**)	0.036	1
FSZ	−0.141 (**)	0.433 (**)	0.244 (**)	0.262 (**)	1
ROA	−0.132 (**)	0.139 (**)	0.098 (**)	−0.157 (**)	0.135 (**)	1
ICR	0.014	−0.032	0.022	−0.016	0.023	0.018	1

Note: The table reports Pearson correlation coefficients. ** indicates significance at 1% level. The data covers a sample of non-financial companies listed on the Indonesia Stock Exchange between 2018 and 2023. It contains data with 1518 company-year observations in total. The variable definitions can be found in Table 3.

present these descriptive statistics and the results of the Pearson correlation analysis of non-financial companies listed on the Indonesia Stock Exchange (IDX) during the observation period from 2018 to 2023.

Based on Table 4, the average cost of debt (COD) for non-financial companies listed on the Indonesia Stock Exchange was recorded at 4.8% during the 2018–2023 period, with a range of 1–13.9%. The data also shows that the average interest rate on loans for non-financial companies listed on the Indonesia Stock Exchange during this period was 4.8%. This interest rate is relatively low in the context of the domestic market and may reflect creditors’ lower perception of risk towards companies that implement sustainability practices. The average ESG disclosure (ESGD) was 43.4%, indicating that non-financial companies listed on the Indonesia Stock Exchange generally did not disclose half of the ESG information recommended by the Global Reporting Initiative (GRI) during the 2018–2023 period. ESGD values vary significantly, ranging from 2.5% to 100%, highlighting differences in sustainability reporting practices between companies. These differences reflect variations in companies’ strategic management, conceptual and regulatory understanding, and internal capacity with regard to sustainability issues. Only 10.8% of the non-financial companies in the research sample had an ESG committee. This figure is relatively small given that the research sample comprised 1518 companies from 2018 to 2023. This finding suggests that ESG committees actively promoting sustainable corporate practice remain limited.

Regarding control variables, the company’s leverage (LEV) averaged 41.3%, ranging from 4.8% to 79.7%. These data show that the average debt financing of non-financial companies listed on the Indonesia Stock Exchange for the 2018–2023 period was 41.3%. This finding suggests that most companies are highly dependent on debt-based financing, which is a common characteristic of companies in developing countries. The average company size (FSZ), as measured by the natural logarithm of total assets, was 28.825 (with a range of 23.388 to 33.730), reflecting the dominance of large companies in the sample. Meanwhile, the average return on assets (ROA) was recorded at 3.7%, with a wide range from −58.7% to 52%. These results demonstrate significant variation in the performance of non-financial companies in Indonesia, with some being highly efficient and healthy, while others are under severe pressure. While the positive average ROA of 3.7% indicates that profitability is maintained on an aggregate basis, this figure is relatively low, suggesting scope for improvement in asset efficiency. The average ICR of 15.588, with a range of −55.891 to 605.603, indicates a relatively safe debt structure; however, the extreme range values show that financial risk varies greatly between companies.

Analysis of company data shows that of those listed on the Indonesia Stock Exchange for the 2018–2023 period, 45.19% have an above-average cost of debt (COD). Meanwhile, 56.19% of non-financial companies listed on the Indonesia Stock Exchange during this period have below-average ESG disclosure (ESGD). Furthermore, 48.82% of non-financial companies listed on the Indonesia Stock Exchange for the 2018–2023 period have above-average leverage. Additionally, 49.60% of non-financial companies listed on the Indonesia Stock Exchange for the 2018–2023 period have a company size below average (FSZ). In total, 54.67% of non-financial companies listed on the Indonesia Stock Exchange for the 2018–2023 period recorded a return on assets (ROA) below average. A total of 52.70% of non-financial companies listed on the Indonesia Stock Exchange for the 2018–2023 period recorded an ICR below average. These findings demonstrate that achieving good corporate governance remains challenging.

4.2. Hypothesis Testing Results

This study employed a hypothesis testing approach involving multiple regression and moderated regression analysis (MRA). The aim was to empirically evaluate the effect of environmental, social, and governance disclosure (ESGD) on the cost of debt (COD), and to examine the role of an ESG committee (ESGC) in this context. The decision to accept or reject the hypothesis was based on statistical significance at a p-value < 0.05 threshold. The fixed effects model estimation results in

Table 6. Results of Fixed Effects Regression Model for Panel Data.

Variable	Model 1			Model 2			Model 3
	Coefficient	Std. Error	t-Statistic	Coefficient	Std. Error	t-Statistic	Coefficient	Std. Error	t-Statistic
C	0.029	0.025	1.139	0.026	0.025	1.025	0.028	0.025	1.120
ESGD	−0.008 (**)	0.003	−2.678	−0.007 (*)	0.003	−2.050	−0.010 (**)	0.004	−2.905
ESGC				−0.005 (*)	0.002	−2.363	−0.019 (**)	0.006	−3.349
LEV	0.008	0.006	1.315	0.008	0.006	1.304	0.009	0.006	1.416
FSZ	0.001	0.001	0.800	0.001	0.001	0.905	0.001	0.001	0.871
ROA	−0.004	0.009	−0.461	−0.003	0.009	−0.324	−0.005	0.009	−0.512
ICR	0.000	0.000	0.202	0.000	0.000	0.332	0.000	0.000	0.598
ESGD_ESGC							0.022 (**)	0.008	2.624
R-squared	0.779			0.780			0.782
Adjusted R-squared	0.647			0.650			0.651
Prob(F-statistic)	0.000			0.000			0.000

Note: This table presents the results of the regression of ESG disclosure, ESG committee, and the interaction of ESG disclosure with the ESG committee, along with other control variables on COD. The data includes a sample of 1518 observations of non-financial companies listed on the Indonesia Stock Exchange. *, ** indicate significance at the 5% and 1% levels, respectively. Variable definitions refer to Table 3.

show that ESG disclosure has a negative and significant effect on the cost of debt: β = −0.008 and p < 0.01 (Model 1); β = −0.007 and p < 0.05 (Model 2); and β = −0.010 and p < 0.01 (Model 3). These results suggest that a company’s ESG disclosure can reduce its cost of debt. These results support the first hypothesis, which states that ESG disclosure reduces the cost of debt.

However, the ESG Committee (ESGC) had a significantly negative effect on the cost of debt, with coefficients of β = −0.005 and β = −0.019 and p-values of <0.05 and <0.01, respectively, in Models 2 and 3. Based on this finding, the ESG committee acts as an independent variable. The interaction between ESG disclosure and the ESG committee shows a positive and significant relationship, with a coefficient of β = 0.022 and a p-value of less than 0.01 (model 3). This finding suggests that the ESG committee quasi-moderates the relationship between ESG disclosure and the cost of debt because it directly influences the cost of debt. The presence of an ESG committee signals sustainable governance to creditors and demonstrates commitment to managing governance risk, impacting the cost of debt. Thus, the ESG committee can moderate the relationship between ESG disclosure and the cost of debt, accepting the second hypothesis. The presence of an ESG committee acts as a moderating variable, weakening the relationship between ESG disclosure and the cost of debt. The control variables in the financial leverage (LEV) model had a negligible positive effect on the cost of debt, with coefficients of β = 0.008 (Model 1), β = 0.008 (Model 2), and β = 0.009 (Model 3). Company size (FSZ) had an insignificant positive effect on the cost of debt, with coefficients of β = 0.001 (Model 1), β = 0.001 (Model 2), and β = 0.001 (Model 3), all with p-values > 0.05. Return on assets (ROA) had an insignificant negative effect on the cost of debt, with coefficients of β = −0.004 (Model 1), −0.003 (Model 2), and −0.005 (Model 3), and a p-value > 0.05. Interest coverage ratio (ICR) had an insignificant positive effect on the cost of debt, with a coefficient of β = 0.000 (models 1, 2, and 3) and a p-value > 0.05. All of the control variables had an insignificant effect on the cost of debt. Each variable had a p-value above 0.05. These findings suggest that fundamental factors such as leverage, company size, profitability, and the interest coverage ratio did not significantly impact the cost of debt compared to sustainability factors (ESGD and ESGC) within the context of this study’s sample of 1518 non-financial companies from 2018 to 2023. The adjusted R² values of 0.647 (model 1), 0.650 (model 2), and 0.651 (model 3) indicate that the models can explain 64.7% to 65.1% of the variation in cost of debt, which is relatively high. The F-statistic probability of all models (0.000) confirms that the model is significant overall. A summary of the result of hypothesis testing result and interpretation can be seen in Table 6 and

Table 7. Summarize Hypothesis Testing Result.

Hypothesis	Statements	Test Result	Status	Interpretation
Ha1	ESG disclosure negatively affects the cost of debt	The coefficient is negative and significant (p < 0.05)	Accepted	Companies with higher levels of ESG disclosure reduce cost of debt
Ha2	ESG Committee moderates the relationship between ESG disclosure and the cost of debt	The coefficient is positive and significant (p < 0.05)	Accepted	The presence of an ESG Committee weakens ESG disclosure’s influence on the cost of debt.

Note: This table summarizes the results of the hypothesis testing and provides an interpretation.

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4.3. Endogeneity Test

To validate the causal relationship between ESGD and COD, an endogeneity test was conducted that incorporated the RESID01 variable, the residual from the first-stage regression. The RESID01 coefficient had a p-value of 0.937, which was statistically insignificant (p > 0.05). This finding indicates no endogeneity problem in the ESGD variable and the COD relationship. In other words, ESG disclosure is exogenous in this model, thus eliminating the need for an instrumental variables (IV) approach or the two-stage least squares (2SLS) method to address potential endogeneity bias. These results imply that the panel regression model used, the fixed effects model (FEM), is adequate for accurately estimating the effect of ESGD on COD. Therefore, the negative effect of ESGD on the cost of debt found in this study is considered reliable. The absence of indications of endogeneity strengthens the conclusion that ESG disclosure is a relevant external factor in determining the level of corporate cost of debt and is not merely influenced by other unobserved variables (unobserved heterogeneity).

4.4. Robustness Test

The robustness of the research model was tested by examining classical assumptions, including normality, heteroscedasticity, multicollinearity and autocorrelation. The Jarque–Bera normality test showed that the data in research models (1), (2) and (3) were not normally distributed, with a probability value of 0.00 (less than the significance level of 0.05). However, according to the Central Limit Theorem, the Fixed Effect Model estimator remains consistent for panel data, and the t-test and F-test distributions will approach normality. Therefore, the test results are still valid even though the residuals are not normally distributed (Kuersteiner & Prucha, 2013). Furthermore, the multicollinearity test using the Pairwise Correlation method showed no indication of multicollinearity. All correlation coefficients between independent variables are below 0.80 (Project & Prokofjevs, 2021). The heteroscedasticity test using the Breusch–Pagan method also shows that the research model is free from heteroscedasticity issues. This is indicated by the probability values of each independent variable relative to the absolute residual being greater than 0.05 (Martin, 2023). To address the possibility of heteroscedasticity and autocorrelation in this research model, the White cross-section (period cluster) standard errors and covariance (d.f. corrected) method was employed; thus, the standard error values and t-test probabilities were adjusted based on clustering (Abadie et al., 2023; Hoechle, 2007). Based on the overall results of the classical assumption tests, the research model meets the BLUE (Best Linear Unbiased Estimator) criteria.

To ensure the robustness of the model and the validity of the estimation results, a series of robustness tests was conducted on the baseline model using the fixed effects model approach. The first estimation, which excluded control variables, showed that the ESG Disclosure (ESGD) variable had a significant negative effect. The ESG Committee (ESG) variable showed a significant negative correlation. There was a significant positive interaction effect between the ESG and ESGC variables on the COD coefficient. Financial leverage (LEV), firm size (FSZ), return on assets (ROA), and interest coverage ratio (ICR) were not significant in this model. These findings indicate robustness in models 1, 2, and 3.

Secondly, robustness tests using White and clustered standard errors (White cross-sections with period cluster) produced estimates consistent with the baseline model. The ESGD and ESGC coefficients remained negative and significant, with the latter negatively affecting the cost of debt. The interaction between the ESG and ESGC variables has a significant positive effect on the COD coefficient. Financial leverage (LEV) significantly positively affects the cost of debt. These results reinforce the belief that the negative and positive relationships between the ESGD, the ESGC, the ESGD*ESGC, and the cost of debt are robust, even though the method used to calculate the residual variance was changed to address potential heteroscedasticity and correlation between cross-sectional units.

Thirdly, testing using the random effects model (REM) as an alternative specification shows that the ESGD and ESGC coefficients remained negative and significant and that the ESGC still has a negative effect on the cost of debt. The interaction between ESG and ESGC has a significant positive effect on COD. The consistency of these results reinforces the belief that the negative relationship between ESGD and the cost of debt is robust.

Fourthly, robustness testing using a subsample from 2020 to 2023 shows that the negative relationship between ESGD and the cost of debt is significant and that ESGC significantly affects the cost of debt negatively. However, the interaction between ESG and ESGC has an insignificant positive impact on COD. Robustness testing was not conducted during the 2018–2019 period as most Indonesian companies did not yet have ESG committees, making the test irrelevant.

These results confirm that the ESG committee significantly moderates the relationship between ESG disclosure and the cost of debt in this study. Overall, this pool of robustness tests indicates that the negative relationship between ESG disclosure and the cost of debt remains consistent across various model specifications. A summary of the robustness testing can be seen in

Table 8. Results of the Pool of Fixed Effects Regression Model with Varied Model and Testing.

Model Specification	ESGD	ESGC	LEV	FSZ	ROA	ICR	ESGDxSGC
OLS (Fixed Effects Model) excluded control variables	−0.010 (**)	−0.018 (**)	-	-	-	-	0.021 (*)
White cross-section (period cluster) standard errors & covariance	−0.011 (*)	−0.019 (**)	0.008 (**)	0.000	−0.004	0.000	0.022 (**)
Random Effects Model	−0.011 (**)	−0.0184 (**)	0.00555	−0.00062	−0.016 (*)	0.000	0.022 (**)
Sub-Sample Test (Tahun 2020–2023)	−0.011 (**)	−0.016 (*)	0.011	0.000	0.000	0.000	0.0143

Note(s): The table reports pooled regression coefficients. ** Indicates significance at 1% level and * indicates significance at 5% level. The sample consists of 1.518 firm-year observations from 2018 to 2023.

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5. Discussion

5.1. The Impact of ESG Disclosure and Cost of Debt

ESG disclosure (ESGD) significantly negatively affects the cost of debt (COD) of non-financial companies listed on the Indonesia Stock Exchange for 2018–2023. These results indicate that H1 is accepted, and a significant negative relationship between ESGD and COD is found. This finding is in line with research (Al Barrak et al., 2023; Eliwa et al., 2021; Ellili, 2020; Gracia & Siregar, 2021; Mahmoudian et al., 2023; Zheng & Shen, 2024), which concludes that the higher the ESG disclosure, the lower the cost of debt. The results of this study provide empirical evidence that creditors view ESG disclosure as an important factor in mitigating credit risk because concerns about information asymmetry are reduced. Therefore, companies are increasingly encouraged to transparently present ESG reports because they benefit from lower borrowing costs (Eliwa et al., 2021; Gracia & Siregar, 2021). In addition to being a reputation management tool and regulatory compliance, ESG disclosure reflects a company’s long-term commitment to sustainability and achieving the Sustainable Development Goals (SDGs) (Nicolo et al., 2024). Integrating ESG into corporate decision-making reflects a proactive approach to risk management, which signals a company’s readiness to face regulatory demands and market dynamics (Zheng & Shen, 2024). In addition, our findings show that creditors incorporate ESG information into their risk assessment and credit decision-making processes. Companies that publish more comprehensive sustainability reports benefit from lower cost of debt. High transparency and quality of ESG disclosures increase creditor confidence (Hu & Liang, 2024). When companies actively disclose relevant ESG information, creditors assess their risk as lower, lowering the cost of debt. This finding confirms the importance of ESG reporting as a strategy to obtain more favorable financing conditions (Lei et al., 2023).

In the regional context, the results of this study are consistent with various studies conducted in various economic regions, including companies in the European Union (Eliwa et al., 2021), global markets (Feng & Wu, 2023), China (Hu & Liang, 2024; Zheng & Shen, 2024), Saudi Arabia (Al Barrak et al., 2023), and North America (Mahmoudian et al., 2023). The empirical evidence shows that creditors’ perceptions of ESG disclosure are increasingly uniform in developed and developing countries. This uniformity indicates that ESG transparency has become a primary criterion in financial decision-making (Rossi & Candio, 2023).

These findings also align with the main theoretical frameworks: legitimacy theory and institutional theory. ESG disclosure can reduce information asymmetry as the foundation for conflicts of interest between managers and creditors (Gracia & Siregar, 2021). Reduced information asymmetry will help creditors mitigate corporate risks, especially reputational and default risks, which reduce the cost of debt imposed on the company (Apergis et al., 2022). This finding is in line with legitimacy theory, which explains the motivation of companies to disclose ESG information to maintain social support and comply with government regulations while demonstrating a commitment to sustainable practices (Eliwa et al., 2021). The company’s ability to maintain legitimacy will prevent it from reputational risk, which is one of the creditors’ considerations in setting the cost of debt (Gracia & Siregar, 2021). Institutional theory highlights the influence of regulatory expectations and market pressures in shaping corporate ESG disclosure practices (Eliwa et al., 2021). A company’s commitment to keeping its legitimacy in the environmental, social, and governance sectors and compliance with the provisions set by the Financial Services Authority (OJK) can increase creditor confidence in the sustainability of the company’s business practices. This study emphasizes Indonesia’s strategic role in promoting sustainable business practices aligned with the GRI framework. This finding encourages sustainable reporting that is in line with global standards. Furthermore, as regulations related to ESG reporting develop, companies in Indonesia are expected to continue improving the quality of disclosure to maintain competitiveness in the global financial market.

The results show that financial leverage has no significant effect on the cost of debt. This finding is supported by previous studies such as Al Barrak et al. (2023), Kopyrina and Stepanova (2023), and Mahmoudian et al. (2023). Financial leverage may not sufficiently determine creditors’ risk assessments. Instead, creditors may emphasize qualitative factors, such as corporate governance and risk mitigation strategies. Similarly, firm size was found to have no significant effect on the cost of debt. This finding also supports previous studies such as Al Barrak et al. (2023), Apergis et al. (2022), and Maaloul et al. (2023). This result challenges conventional assumptions that larger firms benefit from lower financing costs due to economies of scale. It indicates that creditors might assess firms on a case-by-case basis, considering broader risk management factors rather than relying solely on firm size to indicate financial stability (Chodnicka-Jaworska, 2021).

Return on assets (ROA) also exhibited no significant effect on the cost of debt. This finding supports prior studies such as Al Barrak et al. (2023) and Gracia and Siregar (2021). This finding recommends that profitability is not a primary determinant in creditors’ risk evaluations for non-financial firms listed on the ESG Leader Index of the Indonesian Stock Exchange for the period 2020–2023. Instead, financial factors associated with ESG considerations may carry greater weight in credit risk assessments to determine the cost of debt (Ye et al., 2023). The interest coverage ratio (ICR) has no significant positive effect on the cost of debt. This result contradicts prior research, which found that ICR hurts the cost of debt (Eliwa et al., 2021)

5.2. The Moderating Effect of ESG Committee on the Relationship Between ESG Disclosure and Cost of Debt

The results of the study investigating the moderating effect of the Environmental, Social and Governance (ESG) Committee on the relationship between ESG disclosure and cost of debt in non-financial companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2023 show that the interaction between the ESG Committee and ESG disclosure significantly affects cost of debt. Referring to model 3, the results show that, independently, both the level of environmental, social and governance (ESG) disclosure and the existence of an ESG committee have a negative effect on the cost of debt, indicating the ability of each variable to reduce creditor risk perceptions. ESGD reduces information asymmetry by increasing transparency regarding sustainability performance, thereby reducing risk perceptions and ultimately the cost of debt.

Meanwhile, the ESGC functions as a governance mechanism that signals a company’s long-term commitment to sustainability issues, reducing governance risks and the cost of debt. However, the findings show that the interaction between ESGD and ESGC produces a positive coefficient, implying that combining ESGD and ESGC does not strengthen their individual COD-reducing effects. This phenomenon can be explained by three factors:

(1) Redundancy, whereby the existence of an effective ESG committee means additional disclosures do not provide significant marginal benefits (Devi et al., 2024). (2) Cost signalling, whereby extensive disclosures accompanied by an ESG committee may indicate substantial investment and implementation costs for sustainability initiatives, which creditors could interpret as short-term cash flow pressures. This could lead them to demand a higher risk premium (Del Gesso & Lodhi, 2024; Kuzey et al., 2023). (3) Symbolic governance, whereby the ESG committee is formally established for compliance or legitimacy purposes, without playing a substantive role in mitigating risks relevant to creditors. This leads creditors to perceive governance risks as remaining high (Shalique et al., 2022).

In the context of non-financial companies in Indonesia, however, the results suggest that the ESG committee tends to have a substantive rather than a symbolic function because it directly influences the cost of debt and significantly moderates the relationship between ESG disclosure and the cost of debt. While most non-financial companies listed on the Indonesia Stock Exchange (IDX) have committed to implementing POJK No. 51/2017, increasing sustainability disclosures and establishing an ESG committee, when they announce plans for significant investments in areas such as energy transition and environmental mitigation projects requiring substantial capital expenditure, this information signals potential short-term liquidity pressures and project implementation risks to creditors. Consequently, the effect of lowering the cost of debt is limited (Zulviana, 2024). Therefore, the presence of an ESGC in non-financial companies in Indonesia is often interpreted as a signal of substantive legitimacy in determining credit risk reduction. However, these findings contradict previous empirical studies, which concluded that the establishment of an ESG committee enhances the credibility of ESG practices (Abdullah et al., 2024; Baraibar-Diez & Odriozola, 2019; Bifulco et al., 2023; Burke et al., 2019; Suttipun & Dechthanabodin, 2022; Zampone et al., 2024). This finding highlights the complexity of institutional dynamics and the level of sustainability governance maturity, which is still developing in Indonesia (Putri, 2025). This finding corroborates the viewpoint of Burke et al. (2019), who emphasise that while the presence of an ESG committee can help to maintain a company’s value and reputation, it does not necessarily substantially reduce sustainability risks.

This is consistent with research by Abdullah et al. (2024), which demonstrates that the effectiveness of an ESG committee hinges on its substantive role in designing and enforcing sustainability policies, rather than its mere existence as a formal structure. Conversely, global best practice indicates that in countries with high levels of ESG regulation (e.g., the European Union, the United Kingdom and Canada), an active and accountable ESG committee can strengthen the impact of ESG disclosure on reducing the cost of debt. However, in Indonesia, ESG reporting and oversight standards are still being strengthened, so the ESG Committee’s presence has not yet functioned optimally as a sustainability signal booster.

Nevertheless, such legitimacy is often achieved symbolically through minimal compliance with regulations, without any corresponding improvement in the substance or quality of disclosure (Velte & Stawinoga, 2020). In this context, ESG committees are often formed as a window-dressing strategy to meet external expectations, with no real performance in managing ESG aspects (Subaki & Tukirin, 2024). Burke et al. (2019) also found that the effectiveness of the ESG committee depends heavily on its focus on key stakeholders, particularly in industries with high sensitivity to sustainability issues. Abdullah et al. (2024) also found that achieving ESG targets depends heavily on the frequency of meetings and the strategic focus of the ESG committee.

Based on the above, the significant moderating role of the ESG committee in the relationship between ESG disclosure and cost of debt, which weakens the effect on cost of debt, is due to several factors. Firstly, only around 10.8% of the total research sample has a dedicated ESG committee. Secondly, the role of the ESG committee in Indonesia is shifting from symbolic to substantive in order to promote ESG disclosure to creditors when determining the cost of debt. The focus is now on maintaining the company’s reputation and strengthening substantive management to control governance risk. Thirdly, regulations and standards for ESG practices, supervision and auditing procedures are lacking, which reduces the effectiveness of the ESG committee as a governance mechanism in promoting legitimate companies’ ESG disclosure, which can strongly influence creditors’ risk perceptions in determining the cost of debt.

6. Conclusions, Implications and Limitations

6.1. Conclusions

This study investigates the moderating effect of the Environmental, Social, and Governance (ESG) Committee on the relationship between ESG disclosure and the cost of debt for non-financial companies listed on the Indonesia Stock Exchange between 2018 and 2023. Hypothesis testing revealed that, during this period, ESG disclosure significantly negatively affected the cost of debt for non-financial companies listed on the Indonesia Stock Exchange. Testing the interaction between the ESG committee and ESG disclosure on the cost of debt revealed that the ESG committee can significantly moderate this relationship. The ESG committee functions as a partial moderator because it directly influences the cost of debt. It weakens the relationship between ESG disclosure and the cost of debt. Based on the results of the hypothesis testing, it can be concluded that ESG disclosure information is important for creditors when determining the cost of debt for non-financial companies listed on the Indonesia Stock Exchange during this period. Creditors also consider the existence of an ESG committee when assessing the relevance of this information. Based on these findings, we propose that the role of the ESG committee in non-financial companies listed on the IDX is shifting from symbolic to substantive, to promote ESG disclosure to creditors when determining the cost of debt. Therefore, the results of this study suggest that ESG committees play a more substantive than symbolic role in promoting corporate ESG practices to creditors in relation to determining the cost of debt.

6.2. Implications and Limitations

This study has both theoretical and practical implications. From an academic perspective, it contributes to developing literature on sustainable finance by emphasizing the importance of non-financial factors—particularly ESG disclosure and the ESG committee—in financial and investment decision-making. Our findings broaden the understanding of how the ESG committee can moderate the relationship between ESG disclosure and the cost of debt, emphasizing the need to shift from symbolic to substantial and meaningful reporting. Furthermore, this study emphasizes the relevance of non-financial information like ESG disclosure in determining financial decisions, encouraging the development of theoretical models that consider integrating sustainability risks into the financial system. The results deliver an impactful reference point for academics seeking to develop a more comprehensive theory of sustainable finance and its impact on corporate financing decisions. These findings strengthen legitimacy and institutional theory perspectives. Transparent and reliable ESG disclosure that includes a comprehensive risk assessment is essential for strengthening the legitimacy and reputation of a company.

Meanwhile, from an institutional theory perspective, this study emphasizes the important role of regulatory institutions. The Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) encourage companies to provide better ESG disclosure based on regulated corporate governance. Regular publication of sustainability reports on official platforms such as the IDX website can significantly influence corporate credit decisions. The ESG committee plays a key role in enhancing the credibility of sustainability reports by being involved in the technical and operational policies of ESG practices.

From a practical perspective, this study emphasizes the importance of fostering close relationships between creditors, companies, and regulators to enhance the quality of ESG disclosures. For creditors, the results provide a basis for assessing a company’s creditworthiness. This finding is achieved by considering both the quality of the disclosures and whether an ESG committee is present within the corporate governance structure. This finding makes the lending process more accurate and risk-based. We recommend that regulators such as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) strengthen policies by requiring more credible ESG disclosures and establishing an ESG committee to conduct corporate risk assessments. To encourage ESG committees to play a more substantive role in disclosing relevant information, the OJK needs to issue follow-up regulations based on POJK No. 51/POJK.03/2017 concerning implementing sustainable finance for financial services institutions, issuers and public companies. This regulation specifically covers corporate sustainability governance. This finding is consistent with efforts to increase transparency, reduce greenwashing practices, and strengthen the integrity of sustainable governance in the Indonesian capital market. The findings also provide strategic input to institutions such as the Indonesian Institute of Accountants (IAI), Central Bank of Indonesia, the Ministry of Finance, and the Supreme Audit Agency (BPK), to inform the formulation of reporting standards and the auditing of entity sustainability. Adopting strict reporting and auditing standards will increase corporate accountability when using ESG funds, ensuring tangible benefits for environmental conservation, community empowerment, and strengthened corporate governance. To this end, the IAI has launched the ‘Sustainability Disclosure Standards Roadmap’ (SDK), prepared by the Sustainability Standards Board (SSB), due to come into effect in December 2024. This document has been approved by the Sustainability Standards Monitoring Board and adopted by the IAI National Executive Board. The SDK Roadmap provides strategic guidance on preparing the SDK in line with international (ISSB) standards. SDK is scheduled to come into effect on 1 January 2027, although adoption before this date is possible.

Despite delivering significant contributions, this study has several limitations that should be noted and could inform further research. Firstly, we acknowledge the potential for subjectivity and inconsistency when measuring ESG disclosure across industries. Secondly, variability in ESG disclosure assessment methods poses a challenge. Different approaches to assessing the quality of ESG disclosure can produce different results, so validation using various assessment models is important to increase the reliability of the findings. Secondly, in the Indonesian context, data on ESG committee characteristics, such as the number of members, meeting frequency, and professional background, are difficult to obtain because most companies do not publish such data. Therefore, we measure ESG committee variables using dummy variables, a simpler method that is nevertheless relevant.

Thirdly, only around 10.8% of the total research sample, which uses secondary data from local Indonesian databases (CESGS and TICMI), has a dedicated ESG committee. This data may limit the scope of the available ESG information. Fourthly, the quantitative approach used in this study has not fully captured companies’ internal conditions relating to ESG implementation. Therefore, a mixed-methods research approach is recommended to gain a deeper understanding. Fifthly, this study has not distinguished the categories and sources of the cost of debt in detail. A more segmented analysis of debt types (e.g., green bonds, conventional bank loans, or project-based financing) could provide a clearer picture of the impact of ESG on a company’s financing structure. The limitations of this study can be used as a reference point for future research. The findings suggest that companies need to improve the quality of their Environmental, Social, and Governance (ESG) disclosures and strengthen their corporate governance to obtain a lower cost of capital. The researcher encourages regulatory institutions, such as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX), to develop and implement better standards for disclosing and auditing ESG activities. Regularly publishing sustainability reports and corporate governance commitment data on official platforms, such as the IDX website, could significantly influence corporate credit decisions.