The Influence of Sustainability Disclosure on Financial Performance: A Study of Indonesian Firms

Abstract

This study examines the correlation between the disclosure of sustainability measures and the financial success of companies in Indonesia. The increasing importance of sustainability disclosure, which includes environmental, social, and governance factors, for firms to demonstrate their dedication to sustainable practices, has generated significant debate on its influence on financial results. This study investigates the impact of sustainability disclosures on the financial performance of companies in Indonesia, thus adding to the existing body of knowledge on this topic. The study utilizes a mixed-method approach, incorporating qualitative content analysis of data extracted from annual reports, as well as quantitative analysis derived from financial statements of publicly traded corporations. The sample consists of companies from three major industry sectors, each demonstrating different levels of quality in disclosing their sustainability practices. Accounting-based indicators like return on assets (ROA) and return on equity (ROE) are used to evaluate financial performance. The findings demonstrate a direct and favorable relationship between the caliber of sustainability disclosures and financial performance, specifically in sectors that are highly responsive to environmental concerns. Companies that have more comprehensive and transparent sustainability reporting processes in these industries generally achieve better performance compared to those with less comprehensive reporting. These conclusions have substantial ramifications for firms, investors, and policymakers. Enhancing sustainability disclosure can enhance a company’s financial performance and act as a significant factor for investment choices, providing information about a company’s dedication to sustainability and related risks. Policymakers can utilize these observations to support the implementation of improved sustainability reporting regulations, thereby fostering sustainable economic growth in Indonesia. Ultimately, the research confirms that Indonesian companies who provide detailed and reliable information on their sustainability efforts have a positive correlation with their financial performance. This emphasizes the significance of improving these practices to achieve both economic prosperity and sustainable development objectives.