Jurnal Ekonomi Bisnis dan Kewirausahaan (JEBIK) 2026.
Vol.
No.
1, 1-24
DOES RENEWABLE ENERGY REDUCE ESG RISK?
EVIDENCE FROM ENERGY-INTENSIVE INDONESIAN FIRMS
Siti Rokhaniyah1.
Alex Johanes Simamora*2.
Siti Afidatul Khotijah3
1, 2, 3
Tidar University.
Indonesia
ABSTRACT
The main objective is to determine whether renewable energy adoption effectively reduces ESG risk and whether this effect varies depending on the level of energy intensity.
Using a purposive sample of 180 firm-year observations from companies included in the ESG Leader Index during 2021Ae2023, the research applies fixed-effect regression analysis, supplemented by robustness tests that classify firms into low and high energy intensity groups.
The findings indicate that companies adopting renewable energy experience significantly lower ESG risk compared to those that do not, with the effect being more pronounced in energy-intensive industries.
In addition, the role of independent commissioners is shown to strengthen ESG risk reduction in high energy intensity firms, while institutional ownership has no significant impact.
These results confirm stakeholder theory, legitimacy theory, and risk management theory, as renewable energy adoption simultaneously enhances stakeholder trust, secures social legitimacy, and mitigates sustainability-related risks.
The novelty of this study lies in providing empirical evidence from an emerging market and in emphasizing the moderating role of energy intensity.
JEL: G32.
Q42.
Q56.
Keywords: renewable energy.
ESG risk, energy intensity.
INTRODUCTION
Climate change is an urgent and crucial issue globally since it has a significant impact on human life and ecosystems.
Carbon emissions from industrial events, transportation, and fossilbased energy consumption bring higher temperatures of the earth, overflowing seas and oceans, and intense natural disasters (Bolan.
Padhye.
Jasemizad.
Govarthanan.
Karmegam.
Wijesekara.
Amarasiri.
Hou.
Zhou.
Biswal.
Balasubramanian.
Wang.
Siddique.
Rinklebe.
Kirkham, & Bolan.
Global gives higher awareness and concern to these damages by promoting energy transition that has characteristics of clean and eco-friendly energy (Bakhsh.
Zhang.
Ali, & Olyh.
Rahman.
Lipu.
Shovon.
Alsaduni.
Karim, & Ansari, 2.
In this case, renewable energy is perceived as one of the strategic solutions to mitigate greenhouse and carbon emissions, while also improving sustainable development.
As a response, the global community has arranged a global agenda to accelerate the energy It is initiated by the 2015 Paris Agreement, which aims to keep the temperature increasing benchmark of below 2AC while mitigating the temperature level up to 1.
5AC compared to the pre-industrial era (Delbecq.
Fontane.
Gourdain.
Planys, & Simatos, 2.
The 2015 Paris Agreement brings countries' commitment to reduce carbon emissions progressively, while implementing renewable energy rapidly.
Furthermore, the United Nations promotes the Sustainable Development Goals (SDG.
to establish access to affordable and clean energy (SDG .
and climate change reduction (SDG .
The global agenda of renewable energy and climate change contributes to giving a normative framework for government and companies to shift the Corresponding Author: alexjohanessimamora@untidar.
Received: 20-02-2026.
Accepted: 05-04-2026.
Published: 06-04-2026 P-ISSN: 2087-9954.
E-ISSN: 2550-0066.
DOI: http://dx.
org/10.
26418/jebik.
Rokhaniyah.
Simamora, & Khotijah current system into sustainable energy production and consumption systems (Voulvoulis.
Giakoumis.
Hunt.
Kioupi.
Petrou.
Souliotis.
Vaghela, & binti Wan Rosely, 2.
Global investors, financial institutions, and regulators also give higher awareness to sustainability aspects when they evaluate the companiesAo performance (Chau.
Anh, & Duc, 2.
Investors ask for transparency of environmental, social, and governance (ESG) aspects (Aydomu.
Gylay, & Ergun, 2.
Financial institutions also begin to assess funding based on companiesAo commitment to clean energy (Downie & Peterson, 2.
Regulators also push companies to implement sustainability reporting and climate risk management.
Global pressures lead companies to enter new dynamics of business strategy where renewable energy implementation can give investors trust, affordable funding costs, and a positive reputation for companies (Arhinful.
Mensah.
Amin.
Obeng, & Gyamfi, 2025.
Hardi.
Idroes.
Hamaguchi.
Can.
Noviandy, & Idroes, 2025.
Qadir.
Al-Motairi.
Tahir, & Al-Fagih, 2.
On the other hand, companies that ignore the issue of energy transition will face an increase in ESG risk that can decline market value and business and sustainability (Bagh.
Fuwei, & Khan, 2024.
Naseer.
Guo, & Zhu, 2.
Indonesia has a regulation of PP No.
22 of 2017 about the National Energy General Plan (Rencana Umum Energi Nasional or RUEN), which determines the target of energy fusion where renewable energy implementation can reach up to 23% by 2025 and 31% by 2050.
The regulation is part of a long-term strategy to reduce fossil-based energy dependence, since fossil-based energy dominates the national energy consumption (Muzayanah.
Lean.
Hartono.
Indraswari, & Partama.
This commitment not only aligns with the global agenda to reduce carbon emissions but also serves as a national instrument for maintaining energy security, mitigating environmental impacts, and creating new investment opportunities in the clean energy sector (Institute for Essential Services Reform, 2025.
Institute for Essential Services Reform.
Lappeenranta University of Technology, & Agora Energiewende, 2021.
International Energy Agency, 2023.
Massagony.
Pandit, & White, 2.
However, achieving this target requires synergy between the government, the business world, and the public, particularly in terms of investment in technology, infrastructure, and green financing (Qamruzzaman & Karim, 2023.
Wen.
He.
Jing, & Haroon, 2.
In line with this energy policy, regulations related to ESG aspects are also being strengthened in Indonesia.
The Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK) issues the regulation of POJK No.
51/POJK.
03/2017 about Sustainable Finance Implementation.
The regulation requires companies to make a sustainability report that aims to provide transparency of non-financial aspects, including carbon footprints, energy, and sustainable development implementation.
The regulations lead companies to be evaluated based on both financial and non-financial aspects.
Non-financial aspects are required to assess companies' ability to mitigate ESG risk, including risks of reputation, compliance, and competitiveness.
The Indonesia Stock Exchange (IDX) also has a critical role in supporting business The IDX issues the stock index that can facilitate investors who are concerned about ESG aspects, such as the ESG Leader index.
The ESG Leader index consists of companies with superior sustainability performance.
The IDX also promotes green bonds as one of the alternatives to green financing.
Investors see the IDX efforts as a positive signal where business sustainability becomes an important consideration in investment decisions and leads Indonesia to have a strong position to face global climate change (Purnamasari.
Lazuarni, & Maleha, 2.
Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms However, renewable energy implementation in Indonesia still faces some challenges.
The data shows that renewable energy fusion has not yet achieved the target of RUEN (Institute for Essential Services Reform, 2.
Indonesia still depends on fossil-based energy, especially coal, as the main power resource to run electricity production since coal is a domestic commodity and affordable (Febriyanti.
Murtadho, & Almattushyva, 2.
Limited technology, costly investment, and insufficient infrastructure also become obstacles to implementing renewable energy (Massagony et al.
, 2.
The gap between policy target and current condition leads to the important question of Indonesian readiness to run renewable energy as a strategic move to mitigate ESG risk.
The environmental aspect in ESG refers to the role of companies in managing the ecological impact of their operations.
Renewable energy, including solar, wind, hydro, and biomass, can significantly reduce carbon footprints (Justice.
Nyantakyi, & Isaac, 2024.
Li.
Wang, & lejia, 2.
Renewable energy leads companies to lower greenhouse emissions, which is the main factor in climate change.
Furthermore, the transition to renewable energy can also reduce environmental risks such as air pollution, water contamination, and ecosystem damage (Jaiswal.
Chowdhury.
Yadav.
Verma.
Dutta.
Jaiswal.
SangmeshB, & Karuppasamy, 2.
In the long term, companies that integrate clean energy into their production chains will be perceived as more responsible by investors, regulators, and the wider public (Almaskati, 2.
From a social perspective, the adoption of renewable energy not only contributes to environmental sustainability but also positively impacts society.
Companies that use clean energy can support public health (Badreddine & Cherif, 2.
by reducing harmful pollutant emissions (Bo.
You.
Sang.
Wang.
Chen.
Xu.
Shan.
Yang.
Bessagnet.
Li, & Xiao, 2.
Furthermore, the energy transition gives opportunities for green jobs in the technology, installation, and maintenance of renewable energy systems (Ma & Wang, 2.
In the context of energy security, diversifying energy sources through renewable energy also reduces dependence on imported fossil fuels, thereby strengthening national economic stability (Yadav & Mahalik, 2.
Thus, the social aspects of renewable energy not only improve community welfare but also strengthen the company's social legitimacy in the eyes of stakeholders (Ahmed.
Ali, & DAoAngola, 2.
Governance also plays a crucial role in relation to renewable energy.
Companies that adopt sustainable energy strategies generally demonstrate a higher level of transparency, both in reporting environmental performance and in responding to stakeholder expectations (Khatri & Kjyrland, 2023.
Sulemana.
Cheng.
Agyemang.
Osei, & Nagriwum 2.
Corporate governance leads companies to avoid regulatory risks, especially governance mechanisms that monitor the benchmark of emission and sustainability reporting (Chen.
Xie, & He, 2024.
Handoyo, 2.
The implementation of sustainability-oriented governance gives companies the ability to manage longterm risk and business sustainability (Chen.
Song, & Gao, 2.
When companies fail to implement renewable energy in operational activities, companies will bear more ESG risk, including reputation risk that comes from public criticism and environmental activist pressure (Ahmed et al.
, 2.
, compliance risk that comes from regulation violation (Hamm.
Wolfe.
Cavanagh, & Lee 2.
, and financial risk that comes from expense inefficiency, funding limitation, and stock market crash (Aydomu et al.
, 2022.
Simamora, 2.
Companies that cannot follow the energy transition tend to lose market trust and competitive advantages (Simamora, 2.
On the other hand, companies that proactively pursue renewable energy can reduce ESG risk by improving investor trust, competitive advantages, reputation.
Rokhaniyah.
Simamora, & Khotijah energy efficiency, and green finance access (Sitompul.
Saifi.
Hutahayan, & Sunarti, 2024.
Wen et , 2.
The urgency of examining renewable energy in relation to ESG risk lies in its direct role as a fundamental driver of sustainability risk mitigation.
ESG risk emerges when companies unsuccessfully manage the environmental impact, social expectations, and governance responsibility (Urbizu.
Ortas, & Etxeberria, 2.
In this context, energy consumption is one of the main sources of critical ESG risk, especially when the energy usage leads to carbon emissions, environmental degradation, and regulatory violations.
Renewable energy adoption is not only operational decision, but also strategical mechanism for companies to manage ESG risk.
reducing fossil energy reliance, companies can reduce carbon emissions and pollution, avoid regulatory violations, achieve business sustainability, and build a reputation (Zhang, 2.
Since non-renewable energy is sensitive to increasing ESG risk, companies can experience regulatory penalties and sanctions, investor distrust, and negative public perception.
It is important to examine how renewable energy implementation can reduce ESG risk, especially in emerging markets such as Indonesia, where the energy transition is still in progress, and companies face pressure to adjust their business to global sustainability standards.
Investors now assess not only financial performance but also the extent to which a company can manage ESG risks (Simamora, 2.
Companies committed to the energy transition, particularly by using renewable energy, send a positive signal to the market that they have a longterm, sustainability-oriented strategy (Zhang & Kong, 2.
This can increase the company's attractiveness to investors who are increasingly stringent in implementing responsible investment For companies, adopting renewable energy serves as both a risk mitigation strategy and an opportunity to create added value (Sitompul et al.
, 2.
By reducing reliance on fossil fuels, companies not only mitigate potential ESG risks but also improve long-term operational cost Clean energy brings companies to gain access to green financing, including green bonds or green index in the Indonesian capital market (Aransyah, 2.
This demonstrates that the energy transition is not only a form of compliance but also a strategic instrument for strengthening a company's competitive position.
Furthermore, investors are increasingly aware that a company's failure to adopt environmentally friendly practices can pose significant financial risks (Cardillo & Basso, 2025.
Cosma.
Rimo, & Schwizer, 2.
Reputational risk from public criticism, regulatory risk from non-compliance with emissions standards, and market risk from declining investor confidence can directly impact a company's stock value (Tran.
Phan.
Tee, & Nguyen, 2.
Therefore, companies that proactively implement renewable energy can strengthen their positive image, maintain investor loyalty, and attract new capital focused on sustainable portfolios (Elarabi & Khalifa, 2025.
Ruan.
Yang, & Dong, 2024.
Sitompul et al.
, 2.
In this regard, renewable energy becomes a strategic factor that connects corporate interests with investor expectations in the era of the global energy transition.
Although the issues of energy transition and sustainability have been widely discussed in the global literature, research on the relationship between renewable energy use and ESG risk remains relatively limited, particularly in the context of developing countries like Indonesia.
Previous research on renewable energy and ESG risk can be seen in Figure 1.
Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms Source: Ouput of VOS Viewer Figure 1.
Previous Research Figure 1 shows that studies on ESG risk and renewable energy have developed within several interconnected thematic clusters.
The first cluster highlights ESG risk management and the banking sector, including ESG risk management, banks, financial institutions, and renewable energy technology (Alsagr.
Belkhaoui, & Ullah 2025.
Chen.
Umar.
Su, & Mirza, 2023.
Murtaza & Luqman, 2025.
Sunio.
Mendejar, & Nery, 2.
The studies focus more on the role of financial institutions in managing ESG risk by supporting the funding for renewable energy projects.
In this case, energy transition does not only relate to technical aspects but also interacts with financial policy and risk governance of financial institutions.
The second cluster focuses more on ESG risk measurement, including index- and ratingbased measurements (NocoE, 2024.
Park.
Hahn.
Lee.
Kim, & Back, 2024.
Pomy & Ciaramella.
The studies show that ESG rating becomes an important factor for investors to assess companies' risk, including how risk can be reduced by implementing renewable energy.
In this case, the ESG index and rating serve as both an evaluation tool of sustainable performance and a market mechanism to lead companies to use clean energy resources.
The third cluster focuses on risks of geopolitics, the energy market, and companies' value (Chen.
He, & Ali, 2025.
Tiwari.
Abakah.
Shao.
Le, & Gyamfi, 2.
The studies explain that the use of fossil-based energy leads companies to be vulnerable to fluctuations in global geopolitics and the market.
In this case, renewable energy plays the role of risk mitigation for market and external condition uncertainty.
Fourth cluster investigates the relationship between ESG and SDGs agenda (Ik.
Ongan, & Islam, 2024.
Ik.
Ongan.
Islam, & Menegaki, 2.
The literature in this cluster demonstrates that the adoption of renewable energy not only mitigates environmental risks but also provides social benefits in the form of public health, green job creation, and supports the achievement of sustainable development goals.
Thus, the academic literature confirms that renewable energy Rokhaniyah.
Simamora, & Khotijah serves as a strategic instrument in strengthening the comprehensive integration of environmental, social, and governance aspects.
Despite the growing body of literature on renewable energy and ESG, several important gaps remain.
First, prior studies predominantly focus on developed countries, where regulatory frameworks, technological readiness, and sustainability awareness are more advanced.
This limits the generalizability of findings to emerging markets such as Indonesia, which face different structural challenges, including high dependence on fossil fuels and limited renewable energy Second, existing research tends to examine renewable energy in relation to ESG performance or firm value, rather than explicitly focusing on ESG risk as a distinct construct.
a result, the role of renewable energy as a risk mitigation mechanism remains underexplored.
Third, prior studies often assume a homogeneous effect of renewable energy across firms, without considering firm-specific characteristics.
In particular, the role of energy intensity as a condition that may strengthen or weaken the relationship between renewable energy and ESG risk has received limited attention.
Therefore, this study aims to address these gaps by examining the effect of renewable energy on ESG risk in Indonesia, while incorporating energy intensity as a moderating or conditioning factor.
Overall.
Figure 1 shows that renewable energy is positioned as a critical factor in ESG risk management, both through financing channels, rating mechanisms, and the global sustainability However, literature focusing on the context of developing countries, including Indonesia, remains limited.
This gap gives space for research that empirically examines how renewable energy adoption affects the ESG risk of public companies listed on the Indonesia Stock Exchange, while expanding academic contributions from an emerging market perspective.
It is important to examine renewable energy and ESG risk in Indonesia.
First, in terms of energy.
Indonesia remains heavily dependent on fossil fuels, particularly coal, as its primary source of electricity generation (Muzayanah et al.
, 2.
This dependence makes the transition to renewable energy sources an urgent agenda, but it is fraught with obstacles, such as limited infrastructure, high investment costs, and suboptimal technological support (Massagony et al.
Under these conditions, public companies in Indonesia are in a crucial position to demonstrate their commitment to supporting the national energy transition targets set out in the RUEN.
Second, in terms of regulation and capital markets.
Indonesia is in the early phase of strengthening sustainability practices.
The OJK has mandated sustainability reporting through POJK No.
51/POJK.
03/2017, that is just implemented fully in 2022.
This makes Indonesia an important laboratory for assessing how regulations and market mechanisms can encourage companies to adapt to global demands regarding ESG risk management.
Third, from a global sustainability perspective, developing countries play a vital role because most of the future carbon emissions growth is projected to originate from these countries (Lu.
Chen, & Cai, 2.
As one of the developing countries.
Indonesia contributes to emissions, and at the same time, has significant potential for developing renewable energy sources such as solar, wind, hydro, and biomass.
Therefore, how Indonesian companies manage the energy transition will have a significant impact on achieving global targets such as the Paris Agreement and the SDGs.
Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms This research aims to examine the effect of renewable energy implementation on ESG risk.
The novelty of this research lies in its focus on linking renewable energy to ESG risk in the Indonesian capital market, which is categorized as an emerging market.
Most international literature focuses on developed countries, while studies in Indonesia are still very limited.
Therefore, this research presents a new perspective on how green energy strategies can play a role in mitigating ESG risk in a business environment still grappling with structural barriers and dependence on fossil fuels.
This research makes an important contribution.
First, in the theoretical perspective, this research extends ESG risks literature by integrating renewable energy into the framework of legitimacy, stakeholder, and risk management theories at the same time.
Second, in the empirical perspective, this research provides evidence from emerging markets such as the Indonesian market, where the renewable energy implementation and ESG regulation are still in the developing stage.
It contributes to filling the literature gap where most studies are conducted in developed countries.
Third, this research introduces energy intensity as a conditioning factor to explain that renewable energy effectiveness can reduce ESG based on companiesAo characteristics of energy usage.
Fourth, this research contributes to managers, investors, and regulators in formulating an effective strategy to reduce ESG risk by implementing renewable energy.
THEORETICAL FRAMEWORK AND EMPIRICAL STUDIES
Theoretical Foundation This study integrates three main theoretical perspectives, namely legitimacy theory, stakeholder theory, and risk management theory, as the primary foundation to explain the relationship between renewable energy and ESG risk.
Legitimacy theory explains that companies must run business activities based on social value, norms, and expectations since companies need society and stakeholders' legitimacy (Velte, 2.
In the context of ESG risk, renewable energy implementation is one of the strategic moves by companies to prove that they have commitments to environmental responsibility.
By shifting to green energy, companies can reduce carbon emissions, improve their reputation, and minimize regulation and social risks.
In Indonesia, the pressure of renewable energy implementation comes from the policy of RUEN (PP No.
22 of 2.
and the sustainability regulation (POJK No.
51/POJK.
03/2.
Renewable energy is an important legitimacy tool for companies in front of regulators, investors, and the public.
Stakeholder theory explains that companies do not only fulfill shareholders' interests but also all stakeholders' interests, including society, government, suppliers, and customers (Mahajan.
Lim.
Sareen.
Kumar, & Panwar, 2.
Higher ESG risk shows that companies fail to fulfill stakeholders' interests, including environmental aspects and transparency.
Renewable energy becomes an important symbol of the fulfillment of stakeholders' expectations.
By implementing clean energy, companies maintain their relationship with green investors, regulators, and society.
Clean energy becomes important performance information for investors (Sitompul et al.
, 2.
regulation compliance behavior assessed by regulators (Burch.
Loraamm, & Nsude, 2.
, and green job providers for the community (Ma & Wang, 2.
Risk management theory shows the companiesAo effort to identify, evaluate, and manage risks to protect companiesAo value and sustainability (Aksana.
Sayar.
Elena, & Elena, 2.
In the context of ESG risk, renewable energy becomes a strategic way to mitigate specific risks.
Rokhaniyah.
Simamora, & Khotijah Investment in green energy can reduce environmental risk .
nvironmental damage and carbon emissio.
, regulation risk .
anctions and penaltie.
, and reputation risk .
ad reputatio.
Therefore, adopting renewable energy is not merely fulfilling a moral or social obligation but also an integral part of corporate risk management.
By combining these three theories, this study argues that renewable energy adoption is not only a compliance mechanism but also a strategic tool to reduce ESG risk, maintain stakeholder trust, and ensure business sustainability.
Renewable Energy and ESG Risk Renewable energy is a source of energy derived from sustainable natural processes, such as sunlight, wind, water, biomass, and geothermal energy (Ang.
Salem.
Kamarol.
Das.
Nazari, & Prabaharan, 2.
Unlike fossil fuels, which are limited and produce high carbon emissions, renewable energy is considered more environmentally friendly because it is naturally renewable and contributes to reducing greenhouse gas emissions (Voumik.
Ridwan.
Rahman, & Raihan.
Zhang, 2.
Globally, renewable energy plays a central role in supporting the transition to a low-carbon economy.
The energy transition has become a key global agenda item in addressing climate change (Bakhsh et al.
, 2.
Renewable energy is seen as key to reducing dependence on fossil fuels, which carry high risks of pollution, price fluctuations, and regulatory pressures.
Implementing renewable energy in companies not only supports operational sustainability but also strengthens the company's position in the global supply chain, which increasingly demands environmentally friendly practices (Cheng.
Chaudhry.
Kazi, & Umar, 2024.
Hmouda.
Orzes, & Sauer, 2024.
Runtuk.
Ng, & Ooi, 2.
In Indonesia, renewable energy is regulated in PP No.
ESG risk refers to companies' risk that occurs when companies cannot manage aspects of environmental, social, and governance risk (Adisti.
Novianti, & Suwarsinah, 2.
ESG risk includes financial risk, bad reputation, and regulatory sanctions and penalties, especially when companies perform business activities that are not aligned with sustainability principles (Cardillo & Basso, 2025.
Handoyo & Anas, 2.
ESG risk becomes an important indicator of sustainability performance, especially for green investors in investment decision-making.
Environmental risk shows the negative impact of companies' business on environmental damage, including carbon emissions, pollution, and nature exploitation (Wang.
Zhang, & Li, 2.
Social risk refers to the negative impact on society, including labor safety, public health, and the local community (Borbor.
Cranenburgh, & Luca, 2.
Governance risk comes from weak governance mechanisms, including lower transparency, conflict of interest, and regulation violation (Areneke.
Adegbite, & Tunyi, 2.
For public companies that are listed on the IDX.
ESG implementation is regulated in POJK No.
51/POJK.
03/2017.
When companies use renewable energy for business activities, they will generate a lower carbon footprint, pollution, and potential conflict with communities (Lulek.
Sadowska.
Walasek, & Brabec, 2024.
Pan.
Xu, & Zaidi, 2024.
Sitompul et al.
, 2.
Companies that use renewable energy can also increase their reputation through compliance with environmental regulations and reduce financial risk by avoiding sanctions and penalty costs (Elarabi & Khalifa, 2.
Renewable energy is not just a tool for emission reduction but also a business strategy for companies to achieve business sustainability by reducing risks.
Renewable energy allows companies to reduce carbon emissions and environmental damage by quitting to use fossil-based energy since fossil-based energy brings more environmental Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms risk (Gentile & Gupta, 2025.
Shahveran & Yousefi, 2.
Renewable energy also helps companies to fulfill the global standard of environmental responsibility, including the Paris Agreement and the SDGs.
Renewable implementation is a symbol of companiesAo commitment to fulfill stakeholdersAo interests (Sulemana et al.
, 2.
In this case, renewable energy promotes stakeholder trust and social legitimacy that can reduce social risk, including reputational risk.
the context of governance, renewable energy is a strategy to meet sustainability principles (Li.
Wang, & Sun, 2.
, including transparency of renewable energy reporting (Hoang.
Przychodzen.
Przychodzen, & Segbotangni, 2.
In this case, renewable energy implementation is a form of green-based governance to fulfill RUEN and avoid regulation violations.
Based on legitimacy theory, companies need legitimacy for business activities, while renewable energy implementation is a strategy to align companiesAo business with environmental and regulatory demands (Velte, 2.
Stakeholder theory explains that companies need to fulfill the stakeholdersAo interests to reduce risks (Mahajan et al.
, 2.
By implementing renewable energy, companies meet the environmental and social responsibility demands of investors, governments, and the public.
Renewable energy is a signal of regulation compliance and business sustainability that can increase stakeholder trust and reduce ESG risk.
Based on risk management theory, renewable energy is part of strategic risk mitigation to reduce ESG risk.
Previous research finds that renewable energy helps companies to reduce environmental risk (Sompolska-RzechuCa.
BIk.
Becker.
Marjak, & PerzyEska, 2.
and increase positive perception from investors (Almaskati, 2.
Alyahya.
Agag.
Aliedan, & Abdelmoety .
and Li.
Li.
Tan, & Mahmood .
also find that renewable energy implementation can increase ESG performance, minimize financial risks, and mitigate regulatory pressures and market Khalid.
Sun.
Guo, & Srivastava .
show that the renewable energy implementation can reduce reputational risk.
Ha: Renewable energy reduces ESG risk.
Theoretical Framework Figure 2 explains how renewable energy can impact ESG risk in public companies in Indonesia.
The underlying principle is that renewable energy serves as a strategic instrument that can help companies reduce their carbon footprint, improve stakeholder relationships, and enhance Based on legitimacy theory, companies seek to gain social and regulatory legitimacy by aligning their business practices with sustainability values.
The use of green energy is an important way to maintain this legitimacy, thereby mitigating ESG risks.
Stakeholder theory emphasizes that companies must consider the interests of all stakeholders.
The adoption of renewable energy is a positive signal that a company is committed to stakeholder expectations, which in turn reduces reputational and social risks.
Meanwhile, risk management theory positions renewable energy as part of a risk mitigation strategy, through which companies can mitigate regulatory threats, financial losses, and negative imagery resulting from environmental management failures.
This research makes some contributions to the existing literature.
First, this research extends the ESG literature by putting renewable energy as an environmental strategy and a comprehensive risk mitigation mechanism that can solve risks of environmental, social, and governance aspects.
Second, this research integrates three main theories, including legitimacy Rokhaniyah.
Simamora, & Khotijah theory, stakeholder theory, and risk management theory, to explain how renewable energy implementation affects ESG risk.
Previous studies examine legitimacy theory, stakeholder theory, and risk management theory separately, while this research provides a more comprehensive Third, this research is aware of companiesAo characteristics of energy intensity that determine the effectiveness of renewable energy in reducing ESG risk.
Fourth, this research focuses on Indonesia as an emerging market.
This research provides contextual insight into how renewable energy adoption is implemented in conditions where regulation is still in progress, high fossil energy reliance, and developing ESG implementation.
Source: Elaboration of Theory.
Previous Research, and Research Context Figure 2.
Theoretical Framework
RESEARCH METHODS
Sample This research uses purposive sampling as a sampling method.
Purposive sampling refers to the sample selection that is based on relevant criteria.
First, samples are companies that are listed on the IDX.
Second, samples are also listed on the ESG Leader index.
The ESG Leader index includes companies that have the highest ESG performance in each sector.
In this case, the ESG Leader index provides a score of ESG risk.
Third, companies are listed in 2021-2023 since the ESG Leader index was issued in 2021.
The selection of 2023 as the final observation year is based on data availability and completeness.
ESG risk data and renewable energy-related disclosures are not fully available for all firms beyond 2023 at the time of data collection.
In addition, using data up to 2023 ensures consistency and comparability across firms, as ESG reporting standards and renewable energy disclosures in Indonesia are still evolving.
Including incomplete or inconsistent data from subsequent periods may introduce bias and reduce the reliability of the analysis.
Therefore, the study limits the observation period to 2023 to maintain data accuracy and robustness of the results.
This research uses samples of 180, as in Table 1.
Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms Table 1.
Research Sample Period of ESG Leader Assessment Maret 2021 September 2021 Maret 2022 September 2022 Maret 2023 September 2023 Total Sample Source: w.
Companies Data Resource This research uses secondary data that has been collected by other parties.
Data, including renewable energy implementation and ESG risk score.
Renewable energy implementation is accessed from the annual report and sustainability report that are provided by w.
id and the company's web page.
The ESG risk score is accessed from the ESG Leader index assessment that is provided by w.
id and w.
Research Variables Research variables include the dependent variable, independent variable, and control The dependent variable is ESG risk.
ESG risk is measured by the ESG risk score, where the lower the ESG risk score, the lower the companies' risk that is covered by ESG activities (Rokhaniyah.
Simamora, & Khotijah, 2025.
Yudhanto & Simamora, 2.
The independent variable is renewable energy implementation.
The energy use by companies is regulated by SEOJK No.
16 /SEOJK.
04/2021 about Annual Report Form and Content.
In this case, companies can use energy resources from renewable sources.
Renewable energy includes solar, water, wind, geothermal, and bio energy (Ang et al.
, 2.
This research measures renewable energy as a dummy variable where score 1 if companies use renewable energy resources and score 0 if otherwise (Doan.
Syylemez.
Doan, & Akya, 2.
Control variables include independent commissioners and institutional ownership.
In this case, control variables aim to control the corporate governance that can affect ESG risk (Abdelkader.
Gao, & Elamer, 2024.
Abdelkefi & Jarboui, 2026.
Liu.
Zhang, & He, 2.
Independent commissioners are members of the commissioner board that has no conflict of interest with owners and management.
Independent commissioners represent public interests, including the implementation of ESG activities (Jafar.
Basuki.
Windijarto.
Setiawan, & Yaacob, 2.
independent commissioner is measured by the proportion of independent commissioners relative to the total members of the commissioner board (Jafar et al.
, 2.
Institutional ownership is a company's stock ownership by institutions.
Institutional shareholders have more knowledge of business and can lead companies to have higher quality ESG (Sun & Zhao, 2.
Institutional ownership is measured by the ownership proportion held by institutions (Sun & Zhao, 2.
Data Analysis This research uses fixed-effect regression to test the hypothesis.
Fixed-effect regression aims to control for different ESG and energy strategies in each company.
This research also uses a preliminary test to ensure that the regression model is not biased.
The regression model can be seen in equation 1.
Rokhaniyah.
Simamora, & Khotijah yaycIya = yca yca1 yaycuyceycyciyc yca2 yaycuyccyceycyyceycuyccyceycuyc yca3 yaycuycycycnycycycycnycuycu yce a.
ESG is ESG risk.
Energy is the implementation of renewable energy.
Independent is an independent commissioner.
Institution is institutional ownership.
The hypothesis is accepted if the coefficient of b1 is negative and significant.
DATA ANALYSIS AND DISCUSSIONS
Descriptive Statistics Category Sample Table 2.
Descriptive Statistics ESG Statistics Independent Commissioner Risk Minimum Maximum Mean Std.
Deviation Institutional Ownership Companies Companies do not implement Minimum Maximum Mean Std.
Deviation Total Minimum Maximum Mean Std.
Deviation Source: Processed Data .
Table 2 provides descriptive statistics of ESG risk, the independent commissioner, and institutional ownership.
There are 180 samples that consist of 96 companies that implement renewable energy and 84 companies that do not implement renewable energy.
ESG risk for companies that implement renewable energy has an average value of 20.
with a deviation of 4.
The range of ESG risk for companies that implement renewable energy 310 Ae 29.
ESG risk for companies that do not implement renewable energy has an average value of 23.
479 with a deviation of 4.
The range of ESG risk for companies that do not implement renewable energy is 14.
080 Ae 29.
ESG risk for all companies has an average value 229 with a deviation of 4.
In this case.
ESG risk for companies that implement renewable energy is lower than for companies that do not implement renewable energy.
The independent commissioner for companies that implement renewable energy has an average value of 0.
470 with a deviation of 0.
The range of independent commissioners for companies that implement renewable energy is 0.
333 Ae 0.
The independent commissioner for companies that do not implement renewable energy has an average value of 0.
488 with a deviation The range of independent commissioners for companies that do not implement renewable energy is 0.
300 Ae 0.
The independent commissioner for all companies has an average value of 480 with a deviation of 0.
Institutional ownership for companies that implement renewable energy has an average value of 0.
543 with a deviation of 0.
The range of institutional ownership for companies that Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms implement renewable energy is 0.
000 Ae 0.
Institutional ownership for companies that do not implement renewable energy has an average value of 0.
493 with a deviation of 0.
The range of Institutional ownership for companies that do not implement renewable energy is 0.
000 Ae 0.
Institutional ownership for all companies has an average value of 0.
487 with a deviation of 0.
Preliminary Test Table 3.
Preliminary Test
Test
Kolmogorov-Smirnov
Glejser
VIF
Run Source: Processed Data .
Result Significance Value = 0.
Significance Value > 0.
VIF <10
Significance Value = 0.
Based on Table 3, the significance value of Kolmogorov-Smirnov is 0.
201, which is bigger 05, indicating that residuals have a normal distribution (Kittaneh & El-Kafrawy, 2.
Significance value of Glejser is more than 0.
05, which shows that there is no heteroscedasticity problem (Ilori & Tanimowo, 2.
The Variance Inflation Factor (VIF) is less than 10, which indicates that there is no multicollinearity problem (Kermarrec.
Lysler.
Guerrier, & Schyn, 2.
Significance value of the Run Test is 0.
186, which is bigger than 0.
05, which indicates that there is no autocorrelation problem (Kumar, 2.
The result of the preliminary test shows that the regression model in this research is not biased.
Comparison Analysis Table 4.
Comparison Analysis Category Mean of ESG Risk Companies implement renewable energy Companies do not implement renewable energy *Significant in 0.
Source: Processed Data .
t-Statistic Significance Table 4 shows the comparison analysis to compare the level of ESG risk between companies that implement and do not implement renewable energy.
Companies that implement renewable energy have an ESG risk average value of 20.
801, while companies that do not implement renewable energy have an ESG risk average value of 23.
Value of t-statistic is 914 .
ignificant in 0.
with significance value of 0.
The result shows that companies that do not implement renewable energy have higher ESG risk than companies that implement renewable energy.
Adoption of renewable energy contributes to ESG performance.
Regression Analysis Table 5 shows the regression analysis of renewable energy on ESG risk that is controlled by an independent commissioner and institutional ownership.
Renewable energy has a coefficient value of -2.
625 with a t-statistic of -3.
ignificant in 0.
and a significance value of 0.
The result shows that renewable energy has a negative effect on ESG risk.
The research hypothesis is accepted where renewable energy reduces ESG risk.
Rokhaniyah.
Simamora, & Khotijah Variable Constant Renewable Energy Independent Commissioner Institutional Ownership Adjusted R-Squared F-Statistic *Significant in 0.
Source: Processed Data .
Table 5.
Regression Analysis Coefficient t-Statistic Significance Robustness Test: Energy Intensity Energy intensity refers to the level of energy consumption by companies to run their business activities (Li.
Li, & Liao, 2.
Higher energy intensity shows that companies use more energy and lack energy efficiency (Chen.
Alharthi.
Zhang, & Khan, 2.
Since renewable energy promotes energy efficiency, renewable energy has a greater impact on companies that have higher energy consumption (Yu.
Liu.
Hu, & Tian, 2.
In Indonesia, companies that use energy intensively include those in the industrial, transportation, and household sectors (Center for Data and Information Technology on Energy Mineral Resources, 2.
In this case, this research separates the analysis between the group of companies with higher energy intensity and the group of companies with lower energy intensity as a robustness This research argues that the benefit of renewable energy to reduce ESG risk occurs more in companies that use energy intensively.
The result of the robustness test can be seen in Table 6.
Variable Table 6.
Robustness Test t-Stat.
Sig.
Coeff.
Coeff.
t-Stat.
Sig.
Constant Renewable Energy Independent Commissioner Institutional Ownership Adjusted R-Squared F-Statistic *Significant in 0.
01, **Significant in 0.
05, .
Group of companies with lower energy intensity (N=.
, .
Group of companies with higher energy intensity (N=.
Source: Processed Data .
Based on Table 6, the result in the group of companies with lower energy intensity shows that there are no independent variables significantly affecting ESG risk, especially renewable energy, which has a coefficient value of 0.
351 with a t-statistic of 0.
and a significance value of 0.
The F-statistic is also insignificant.
In this case, the model of companies with lower energy intensity fails to explain the level of ESG risk.
On the other hand, the group of companies with higher energy intensity has different Renewable energy has a coefficient value of -2.
912 with a t-statistic of -3.
and a significance value of 0.
The result shows that the effect of renewable energy on ESG risk only occurs in companies with higher energy intensity.
Does Renewable Energy Reduce ESG Risk? Evidence from Energy-Intensive Indonesian Firms Discussion This study examines the relationship between renewable energy and ESG risk.
The results consistently show that renewable energy has a significant role in reducing ESG risk, particularly in firms with higher energy intensity.
From the perspective of legitimacy theory, the findings indicate that companies adopt renewable energy to align with societal norms, environmental expectations, and regulatory requirements.
This alignment helps firms maintain legitimacy and reduce ESG-related risks.
From the stakeholder theory perspective, renewable energy serves as a signal that firms are committed to fulfilling stakeholder expectations, including those of investors, regulators, and the broader community.
This reduces reputational risk and strengthens stakeholder From the perspective of risk management theory, renewable energy functions as a strategic tool to mitigate environmental, regulatory, and financial risks.
This is particularly relevant for firms with high energy consumption, where energy-related risks are more substantial.
Empirically, the findings from the comparison analysis and regression results consistently indicate that firms implementing renewable energy tend to have lower ESG risk compared to those that do not.
This suggests that renewable energy is not only a sustainability initiative but also an effective risk mitigation mechanism.
Furthermore, the heterogeneity analysis reveals that the effect of renewable energy is conditional on energy intensity.
Renewable energy does not significantly affect ESG risk in firms with lower energy intensity, but it significantly reduces ESG risk in firms with higher energy intensity.
This finding indicates that the effectiveness of renewable energy depends on the level of energy usage.
Firms with higher energy intensity are more exposed to environmental risks, regulatory pressures, and energy cost volatility.
Therefore, renewable energy adoption in these firms directly reduces their carbon footprint and lowers their ESG risk.
contrast, firms with lower energy intensity have relatively smaller environmental impacts, making the effect of renewable energy less pronounced.
In the context of Indonesia, this finding is particularly relevant, as many industries still rely heavily on fossil fuels.
Energy-intensive sectors face greater pressure to comply with sustainability regulations, making renewable energy a more critical strategy for risk reduction.
These findings provide important managerial implications.
Managers, especially in energyintensive firms, should consider investing in renewable energy not only for regulatory compliance but also as a strategic tool to reduce ESG risk and ensure long-term sustainability.
CONCLUSIONS.
RECOMMENDATIONS.
AND LIMITATIONS
This research concludes that the implementation of renewable energy plays a significant role in reducing ESG risks for companies listed on the Indonesia Stock Exchange.
The analysis results show that companies using renewable energy have a lower ESG risk level compared to those that do not.
The main regression proves that renewable energy has a significant negative impact on ESG risk.
thus, the research hypothesis is accepted.
Further robustness tests show that the impact of renewable energy on ESG risk is only significant for companies with high energy intensity, while it does not show meaningful results for companies with low energy intensity.
This finding confirms the legitimacy theory, stakeholder theory, and risk management theory, which emphasize that clean energy is an instrument of social legitimacy, a signal of meeting stakeholder expectations, and a mechanism for mitigating sustainability risks.
Rokhaniyah.
Simamora, & Khotijah The practical implication of this research is that companies, especially those in energyintensive sectors, need to view investment in renewable energy not just as regulatory compliance but also as a business strategy that can reduce ESG risks while strengthening long-term For investors, the results of this study serve as a basis for considering that companies implementing renewable energy have lower ESG risks and are more sustainable.
For regulators, these findings confirm the importance of strengthening energy transition policies, providing green incentives, and increasing ESG transparency to accelerate the shift toward a lowcarbon economy.
Although it provides empirical contributions, this study has limitations.
First, the renewable energy variable is measured using a dummy variable because of data limitations, so it is not yet able to capture the variation in the level of clean energy use in more detail.
Second, the observation period is limited to 2021Ae2023, so it does not yet reflect the long-term impact of energy transition on ESG risk.
Based on these limitations, future research is recommended to use more detailed measures regarding the proportion of renewable energy in the company's total energy The observation period also needs to be extended to capture the long-term impacts of the energy transition.
REFERENCES