IS GREEN FINANCING PROFITABLY REWARDING AND BOOST MARKET VALUATION? A COMPARATIVE STUDY ON INDONESIAN BANKS

Abstract

This research investigates the financial and market implications of green financing adoption within the
Indonesian banking sector (2019-2024). While many argue that green projects entail higher risks, this study
posits that high commitment to green financing yields superior performance. Using an Independent Sample T
test, we compared 108 observations divided into two groups: High Green Financing (High GF) and Low Green
Financing (Low GF) intensity. The results demonstrate a significant disparity in both operational and market
performance. Banks in the High GF category achieved a significantly higher Return on Equity (Mean =
13.39%; p < 0.001) compared to their counterparts (Mean = 6.64%). Furthermore, market valuation, proxied
by Tobin’s Q, was significantly higher for the High GF group (Mean = 1.08 vs 0.99; p = 0.02). These findings
suggest that green financing is not merely a corporate social responsibility burden but a strategic driver that
enhances internal profitability and attracts market premium. This study provides empirical support for the
"doing well by doing good" hypothesis in the context of Indonesia's emerging sustainable finance landscape.