Corporate Sustainability and Financial Performance: Evidence from State-owned Enterprises in Indonesia

Abstract

Corporate sustainability is a business approach to meet company needs and create stakeholders’ value in the long term. This is reflected in the company’s sustainable strategic planning and responsibility that is more inclusive and focuses on environmental, social, and corporate governance. This study aims to analyze whether corporate sustainability has an impact on the company’s financial performance. The sample studied consisted of 13 listed State-owned Enterprises (SOEs) in Indonesia for the period 2017–2021. To measure corporate sustainability, independent variables consist of the three pillars of environment, social, and governance or ESG (environment, social, governance). The environmental pillar consists of three categories, namely resource use, emissions, and innovation. While the social pillar consists of four categories, namely labor, human rights, community, and product responsibility. Finally, the governance pillar consists of management, shareholders, and social responsibility strategy. The company’s financial performance which is the dependent variable was measured using data on return on investment (ROI) and return on equity (ROE). Data analysis technique used is Automatic Linear Modeling using SPSS. The results of the study show a positive significant relationship between product responsibility (on the social pillar) with ROI and ROE. On the other hand, there is a negative significant relationship between management (on the governance pillar) to ROI and ROE. While other variables show no significant relationship to both ROI and ROE. The practical impact of this research will help academics, business entities, corporations, policymakers, regulatory authorities, and governments to better understand the relationship between sustainability and financial performance. It can also help companies to operate more effectively and efficiently in implementing corporate sustainability in state-owned enterprises in developing countries such as Indonesia. Keywords: corporate sustainability, ESG, financial performance