Exploring the bi-directional relationship of stock return and sustainability performance through the sustainability risk lens (case of Indonesia)


  • Sita Deliyana Firmialy School of Business and Management, Institut Teknologi Bandung, Indonesia
  • Sudarso Kaderi Wiryono School of Business and Management, Institut Teknologi Bandung, Indonesia
  • Yunieta Anny Nainggolan School of Business and Management, Institut Teknologi Bandung, Indonesia




Sustainability investing has been evolved significantly since the last decade. The inclusion of social, environmental, and economic dimension into the portfolio screening criteria is stated as an essential strategy to increase the firms' financial performance. However, previous empirical evidence has gained a mixed result on this issue (i.e. positive, negative, and insignificant). This study contributes to the discussion by offering result on the heterogeneous effect of sustainability performance to the stock return, specifically through the sustainability risk lens. Sustainability risk is related to firm sustainability concern of not being able to perform in a "sustainable manner", thus related directly to the inefficiency within the firms, as well as the firms' idiosyncratic risk. Uniqueness contribution of this study is by offering the analysis in a disaggregated ways (i.e. separately examines the relationship between each sustainability performance dimensions and stock return), within portfolio level. Using large size of cross-sectional data (more than 400 companies over two years span of time) covered all non-financial sectors listed in the Indonesia Stock Exchange (IDX), we are able to confirm the notion of heterogenous sustainability performance within Indonesian firms. We also found evidence on the positive direction of an increase of social and economic performance to stock return. Meanwhile, environmental sustainability performance shows the contrast direction.


Download data is not yet available.


Alexander, G.J. & R.A. Buchholz. (1978). Corporate Social Responsibility And Stock Market Performance. Academy Of Management Journal, 21(3), 479-486.

Artiach, T., Lee & Nelson, D. (2010). The Determinants Of Corporate Sustainability Performance. Accounting And Finance, 50(1), 31-51.

Boaventura, J.M.G., Da Silva, R.S., & De Mello, R.B. (2012). Corporate Financial Performance And Corporate Social Performance Methodological Development And The Theoretical Contribution Of Empirical Studies. R.Cont.Fin~Usp, Sao Paulo, 23(60), 232-245.

Boutin-Dufresne, F., & P. Savaria. (2004). Corporate Social Responsibility and Financial Risk. The Journal of Investing 13(1), 57–66.

Brammer, S., Brooks, S. & Pavelin, S. (2006). Corporate Social Performance And Stock Returns: Uk Evidence From Disaggregate Measures. Financial Management, 35(3), 97-116.

Brammer, S. & Millington, A. (2008). Does It Pay To Be Different? An Analysis Of The Relationship Between Corporate Social And Financial Performance. Strategic Management Journal, 29(12), 1325-1343.

Brammer, S. & Pavelin, S. (2005). Corporate Reputation And Social Performance : The Importance Of Fit. Journal Of Management Studies, 43(3), 435-455.

Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.

Clarkson, M.B.E. (1995). A Stakeholder Framework For Analyzing And Evaluating Corporate Social Performance. Academy Of Management Review, 20(1), 92-117.

De, I., & M. Clayman. (2010) . Are All Components of ESG Score Equally Important?. NYSSA Finance Professionals' Post, July 2010.

Dhaliwal, D., Oliver, L., Tsang, A., & Yang, Y. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. Accounting Review, 86(1), 59–100.

Dhaliwal, D., Radhakrishnan, S., Tsang, A., & Yang, Y. (2012). Nonfinancial disclosure and analyst forecast accuracy: International evidence on corporate social responsibility (CSR) disclosure. Accounting Review, 87(3), 723–759.

Dommerholt, Egbert (2012). Validity And Comparability Of The Sam And Kld Screening Instruments. The Dovenschmidt Quarterly, 1, 45-64.

Dravenstott, J., & N. Chieffe. (2011) . Corporate Social Responsibility: Should I Invest for It or Against It?. The Journal of Investing, 20(3), 108–117.

Fabozzi, F., K. C. Ma, & B. Oliphant. (2008) . Sin Stock Returns. The Journal of Portfolio Management, 35(1), 82–94.

Fauzi, H., Mahoney, L. & Rahman, A. (2007). Institutional Ownership And Corporate Social Performance Empirical Evidence From Indonesian Companies. Social And Environment Accounting, 1(2), 334-347.

Fauzi, H., Mahoney, L. & Rahman, A.A. (2007). The Link Between Corporate Social Performance and Financial Performance Evidence From Indonesian Companies. Social And Environmental Accounting, 1(1), 149-159.

Fauzi, H. (2008). The Determinants Of The Relationship Of Corporate Social Performance and Financial Performance Conceptual Framework. Social And Environmental Accounting, 2, 1-32.

Fauzi, H., & Idris, K.M. (2009). The Relationship Of CSR and Financial Performance: New Evidence From Indonesian Companies. Social And Environmental Accounting, 3(1), 66-87.

Firmialy, S. D., & Nainggolan, Y. A. (2018). Constructing the ideal SRI (sustainability reporting index) framework for Indonesian market: combined perspectives from rating agencies, academics, and practitioners. Social Responsibility Journal, 15(5), 573-596

Firmialy, S. D., (2016). Corporate Social Performance and Stock Returns: Framework Development And Evaluation : Case Of Indonesia Market (Unpublished master's thesis). School of Business and Management, Bandung Institute of Techology (Institut Teknologi Bandung), West Java, Indonesia.

Fulton, M., B. Kahn, & C. Sharples. (2012). "Sustainable Investing: Establishing Long-Term Value and Performance." In Report, Climate Change Advisors. Deutsche Bank.

Galema, R., Plantings, A., & Scholtens, B. (2008). The Stocks At Stake: Return And Risk In Socially Responsible Investment. Journal Of Banking And Finance, 32(12), 2646-2659.

Hong, H., & Kacperczyk, M. (2009). The price of sin: The effects of social norms on markets. Journal of Financial Economics, 93(1), 15–36.

Hopkins, M (1997). Defining Indicators To Assess Socially Responsible Enterprises. Futures, 29(7), 581-603.

Jo, H., & Na, H. (2012). Does CSR reduce firm risk? Evidence from controversial industry sectors. Journal of Business Ethics, 110(4), 441–456.

Mishra, S., & Modi, S. (2013). Positive and negative corporate social responsibility, financial leverage, and idiosyncratic risk. Journal of Business Ethics, 117(2), 431–448.

Odia, J. O., & Imagbe, V. U. (2015). Corporate Social and Environmental Disclosures, Corporate Social and Environmental Performance and Corporate Financial Performance in Nigeria: A Simultaneous Equation Approach. International Journal of Management, 5(9), 615-627.

Orlitzky, M., Schmidt, F., & Rynes, S., (2003). Corporate Social And Financial Performance Meta-Analysis. Organization Studies, 24(3), 403-411.

Rais, S., & Goedegebuure R.V., (2009). Corporate Social Performance And Financial Performance The Case Of Indonesian Firms In The Manufacturing Industry. Problems And Perspectives In Management,7(1), 1-10.

Statman, M., & D. Glushkov. (2009). The Wages of Social Responsibility. Financial Analysts Journal. 65(4), 33–46.

Steg, L., Vlek, C., Lindenberg, S., Groot, T., Moll, H., Schoot Uiterkamp, T., & Van Witteloostuijn, A. (2003). Towards a comprehensive model of sustainable corporate performance. Groningen: Ubbo Emmius Fund

Ullmann, A.A. (1985). Data In Search Of A Theory: A Critical Examination Of Economic Performance On U.S. Firms, Academy Of Management Review, 10, 540-957.

Vance, S.C. (1975). Are Socially Responsible Corporations Good Investment Risks? Management Review, 64, 18-24

Wood, D.J., (1991). Corporate Social Performance Revisited, Academy Of Management Review, 16, 691-718.



2019-11-10 — Updated on 2019-11-10

How to Cite

Firmialy, S. D., Wiryono, S. K., & Nainggolan, Y. A. (2019). Exploring the bi-directional relationship of stock return and sustainability performance through the sustainability risk lens (case of Indonesia). Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 7(2), 127 - 142. https://doi.org/10.22437/ppd.v7i2.7663