The double-edged sword of transparency: ESG disclosure's effect on competitive dynamics in manufacturing

Abstract

This study explores the role and impact of Environmental, Social, and Governance (ESG) information on investor decision-making, focusing on the lack of standardized ESG reporting among companies. Although ESG disclosures can enhance a company’s legitimacy and attract investor interest, the voluntary nature of reporting has led to inconsistent practices and limited information quality. The research aims to develop a standardized ESG reporting model that meets investor needs while assessing the effects of ESG performance on corporate outcomes. Using a mixed-methods approach, the study combines qualitative research to formulate an ESG reporting model and quantitative methods to evaluate its impact on company performance. Data were collected from 167 manufacturing companies in Indonesia, selected based on their consistent publication of sustainability reports over four consecutive years. The findings reveal that ESG shows consistent high significance across all three models (Sig = 0.000 for Model-1, Model-2, and Model-3 regression). This uniform high significance underscores the growing importance of ESG factors in various aspects of corporate performance and perception. It suggests that ESG considerations are integral not only to stock returns and firm valuation but also to a company's competitive positioning. The study concludes that while ESG reporting is essential for corporate transparency, it may not always align with positive financial outcomes. This suggests the need for more comprehensive ESG frameworks to balance investor expectations and corporate performance.