Institutional levers for ESG: Evidence from sustainability committees, external assurance, and IDX clusters board in Indonesia

¹ Janabadra University, Accounting Department, 55231 Yogyakarta, Indonesia
² Janabadra University, Management Department, 55231 Yogyakarta, Indonesia

^* Corresponding author: wikaharisa@janabadra.ac.id

Abstract

This study examines how institutional governance mechanisms, sustainability committees, external assurance, and IDX listing board classification affect ESG risk among 118 listed companies in Indonesia, with particular relevance to corporate preparedness for climate change and sustainability-related transitions. The sample covers firms across all industries except the financial sector. Using multiple linear regression and ESG Risk Scores from Sustainalytics, the findings show that although most firms are Main Board listed and meet formal financial and governance standards, their average ESG risk remains high, indicating persistent exposure to climate-related and environmental vulnerabilities. Sustainability committees, present in only 19.5% of firms, show no significant impact on ESG risk. In contrast, external assurance, adopted by 18.6% of firms, is significantly associated with lower ESG risk. Main Board firms also tend to exhibit lower risk than those on the Development Board. These results highlight that while sustainability reporting aligned with the SDGs and climate governance agendas is increasingly encouraged, credible climate risk mitigation requires more than formal structures. This study underscores the critical role of external validation in strengthening the credibility of corporate climate mitigation actions, suggesting that independent assurance serves as an important governance mechanism to reduce the risk of greenwashing and enhance accountability in ESG disclosures.