The Role of Financial Literacy and Risk Tolerance in Shaping Investment Behavior of Young Entrepreneurs

Abstract

The urgency of sustainable development has heightened global concern in green financing as a strategic method to promote environmentally responsible business practices. However, in emerging economies like Indonesia, incorporating green finance into corporate strategy remains disjointed, with restricted empirical evidence assessing its tangible impact on sustainability performance. This analysis aims to examine the effect of green financing on the environmental, social, and governance (ESG) performance of publicly listed firms in Indonesia. Employing a quantitative research design, the study uses panel data regression analysis on secondary information collected from financial reports, sustainability disclosures, and ESG ratings of firms engaged in green finance activities between 2018 and 2023. The results reveal a substantial positive relationship between adopting green financial instruments—including green bonds, sustainability-linked loans, and environmental capital expenditures—and improvements in ESG performance. These effects are especially pronounced in the environmental and social dimensions, with variation across industrial sectors. By grounding the analysis in Stakeholder Theory and the Resource-Based View, the study provides theoretical insights into the strategic value of green finance as a resource that enhances stakeholder trust and organizational capabilities. The findings contribute to the existing literature by furnishing robust, context-specific evidence from a developing market and offer practical implications for policymakers, corporate managers, and financial institutions seeking to align sustainability goals with financial strategies in support of long-term value creation.