The Influence of Environmental, Social, And Governance (ESG) On Asset Quality in the Banking Industry

Authors

  • Aulia Busono Sekolah Tinggi Ilmu Ekonomi Indonesia
  • Titik Mildawati Sekolah Tinggi Ilmu Ekonomi Indonesia
  • Kurnia Kurnia Sekolah Tinggi Ilmu Ekonomi Indonesia

DOI:

https://doi.org/10.37680/ijief.v6i1.9418

Keywords:

Asset Quality, Environmental, Social, and Governance (ESG), Non-Performing Loan (NPL), Sustainable Finance, Bank Stability

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) adoption on asset quality in Indonesian banks between 2019 and 2022. The Non-Performing Loan (NPL) ratio measures asset quality, while control variables include bank size, operating efficiency (BOPO), liquidity (LDR), capital structure (equity to total assets), economic growth (ΔGDP), and inflation.  Conventional banks that are listed on the Indonesia Stock Exchange and regularly release sustainability and annual reports make up the sample. Panel data regression analysis results show that ESG considerably reduces non-performing loans (NPLs), indicating that stronger ESG regulations improve asset quality and reduce credit risk. Equity to Total Assets and BOPO also significantly influence asset quality, while other variables show no significant effects. These findings support Stakeholder Theory and Risk Management Theory by demonstrating that ESG functions as a governance and risk management mechanism that enhances banking stability. This research broadens our understanding of sustainable finance and offers useful advice for bank management and regulators looking to improve ESG implementation.

Author Biographies

Titik Mildawati, Sekolah Tinggi Ilmu Ekonomi Indonesia

 

Kurnia Kurnia, Sekolah Tinggi Ilmu Ekonomi Indonesia

 

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Published

2026-05-18

How to Cite

Busono, A., Mildawati, T., & Kurnia, K. (2026). The Influence of Environmental, Social, And Governance (ESG) On Asset Quality in the Banking Industry. Indonesian Journal of Islamic Economics and Finance, 6(1), 33–50. https://doi.org/10.37680/ijief.v6i1.9418

Issue

Vol. 6 No. 1 (2026)

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Articles

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Copyright (c) 2026 Aulia Busono, Titik Mildawati, Kurnia Kurnia

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