Environmental disclosure analysis of manufacturing companies to realize sustainable green economy

Abstract

Purpose: Environmental sustainability is a critical issue for many countries, including Indonesia, whose economy is heavily reliant on natural resource extraction. Profitability, liquidity, capital structure, and environmental performance are investigated as potential factors of environmental disclosure in the Indonesian context.

Design/methodology/approach: Data from a final sample of 235 observations of manufacturing industries were collected and analyzed using a partial least square-structural equation modeling (PLS-SEM).

Findings: The findings reveal that profitability, liquidity, capital structure, and environmental performance all have a role in motivating corporations to disclose their environmental responsibilities. This is because environmental disclosure can be utilized to attract new potential investors. As a result, the higher the score for environmental performance, the greater the voluntary effect of environmental disclosure.

Research limitations/implications: This research is not devoid of limitations. First, this study is limited to manufacturing firms in Indonesia. Second, this research only uses a single proxy of measurement. Thus, further research might utilize more sample firms from multiple countries or provide a comparative study between firms that adopt sustainability reporting. Hence, the implication might apply to sustainability reporting-adopted countries, and it might apply not only to emerging countries but also to developed countries. Further research is expected to use more measurements of environmental performance and environmental disclosure so that the result is more robust and has more impact. Moreover, utilizing alternative statistical methods can help validate the results of this study and reinforce the relevant theories.

Practical implications: This research recommends that businesses should view environmental sustainability as a chance to make a positive impact on a more sustainable world for the "well-being of humans as well as the planet" while also improving their financial performance. Businesses that adopt socially and sustainably responsible business practices are likely to see improvements in their financial performance as well as increased credibility and confidence from important stakeholders.

Social Implications: Eco-friendly products desired by consumers can be achieved through the combined influence of financial and environmental performance.

Originality/value: The incorporation of an unbiased evaluation carried out by an external organization, together with the transparent distribution of outcomes utilizing a five-color rating scheme (PROPER), provides significant contributions to the current corpus of knowledge.