Semarang — Sustainability reporting does not always receive a positive response from the Indonesian capital market. A study by Muhammad Luthfi, Raden Roro Karlina Aprilia Kusumadewi, and Imam Ghozali of Universitas Diponegoro found that broader sustainability reporting among consumer non-cyclicals companies listed on the Indonesia Stock Exchange was associated with lower firm value. The study examined companies during 2019–2023 and also found that institutional ownership did not significantly strengthen the relationship between sustainability reporting and firm value.
The finding is important as sustainability reporting becomes increasingly relevant in corporate and investment decisions. Information about environmental, social, and economic impacts is no longer simply an additional component of an annual report. Investors increasingly use non-financial information to understand corporate risks, resilience, and long-term prospects.
However, the study reveals a different market response from what conventional sustainability theories would suggest. In principle, more extensive sustainability disclosure should help investors understand long-term risks and increase confidence in a company. In the Indonesian consumer non-cyclicals sector during 2019–2023, however, the statistical results showed a negative and significant relationship between sustainability reporting and firm value.
The consumer non-cyclicals sector was selected because its companies provide products that are used in everyday life and generally have relatively stable demand. The sector includes businesses involved in food, beverages, household necessities, healthcare products, and other consumer goods.
Although the sector is generally considered defensive, several major companies experienced significant changes in market valuation during the observation period. The study notes that PT Unilever Indonesia Tbk’s Tobin’s Q declined from 16.26 in 2019 to 8.87 in 2023, while PT Indofood CBP Sukses Makmur Tbk fell from 3.67 to 1.46. These movements indicate that market valuation was influenced not only by consumer demand but also by economic conditions, purchasing power, supply-chain risks, and changing investor expectations.
At the same time, sustainability disclosure requirements for Indonesian public companies have become stronger following Financial Services Authority Regulation No. 51/POJK.03/2017. The regulation introduced requirements for sustainable finance and gradually required public companies to publish sustainability reports between 2020 and 2022 according to their asset scale. This made the 2019–2023 period an important transition period for examining how the Indonesian market responded to increased sustainability disclosure.
The researchers used secondary data from consumer non-cyclicals companies listed on the Indonesia Stock Exchange. From 132 companies in the sector, companies were screened based on continuous listing, availability of annual and sustainability reports, and completeness of research data. The screening produced 37 companies for the initial sample. After removing outlier observations, the final dataset consisted of 158 firm-year observations in an unbalanced panel.
Sustainability reporting was measured using a disclosure index based on 76 indicators from the GRI Standards 2016. Firm value was measured using Tobin’s Q, while institutional ownership was calculated based on the proportion of shares held by institutional investors. Firm size was included as a control variable. The researchers analyzed the data using EViews 13, panel-data regression, and Moderated Regression Analysis.
The average sustainability reporting disclosure level among the sampled companies was 46.5 percent of the 76 GRI indicators. However, disclosure levels varied considerably, ranging from only 2.6 percent to 94.7 percent. This variation indicates substantial differences in companies’ readiness and commitment to sustainability transparency.
Institutional ownership had an average of only 7.8 percent. This figure is important in understanding why institutional ownership did not significantly moderate the relationship between sustainability reporting and firm value. With relatively small ownership proportions, institutional investors may have limited voting power and influence over corporate policies and reporting practices.
The regression results showed a sustainability reporting coefficient of -0.313 with a probability value of 0.002. Because the result was statistically significant below the 0.05 threshold but had a negative direction, the hypothesis that sustainability reporting would positively affect firm value was rejected. In the sample examined, broader sustainability disclosure was instead associated with lower market valuation.
The researchers suggest that one possible explanation is the market’s perception of sustainability initiatives as short-term costs. Moving toward biodegradable packaging, restructuring supply chains, investing in renewable energy, and preparing more comprehensive sustainability reports can require substantial immediate spending before their economic benefits become visible.
Investors with a strong short-term orientation may therefore interpret these additional expenses as pressure on profits and free cash flow. As a result, increased sustainability disclosure may not immediately translate into higher firm value. The study also refers to previous research suggesting that markets may respond negatively when sustainability initiatives are viewed as capital-intensive investments without immediate economic returns.
The second major finding concerns institutional ownership. The interaction between sustainability reporting and institutional ownership produced a coefficient of -2.528 with a probability value of 0.088. Because the value remained above the 0.05 significance threshold, the hypothesis that institutional ownership strengthens the relationship was also rejected.
The researchers identify the relatively low institutional ownership level as one possible reason. Institutional investors are theoretically expected to provide stronger monitoring because of their analytical resources and voting power. However, such monitoring may be less effective when institutional investors hold only a small portion of a company’s shares. Their investment horizons may also differ, with some investors focusing more heavily on quarterly performance and short-term returns than on long-term sustainability benefits.
The negative relationship found in the study does not mean companies should reduce sustainability transparency. Instead, the researchers recommend improving the quality and financial relevance of sustainability reporting. Companies should clearly explain how environmental and social initiatives, such as energy efficiency and waste reduction, can contribute to operational savings, regulatory risk reduction, and long-term brand value.
For investors, the findings also highlight the importance of looking beyond short-term profitability. Environmental and social risks can eventually become financial risks when companies face regulatory changes, operational disruptions, or shifting consumer expectations.
The researchers acknowledge several limitations. The study focuses only on the consumer non-cyclicals sector, which limits the ability to generalize the results to industries with different environmental characteristics. In addition, measuring sustainability reporting through the number of GRI 2016 indicators disclosed may not fully capture the quality, authenticity, or actual effectiveness of sustainability initiatives. Future studies are encouraged to cover more industries, extend the observation period beyond 2023, and develop deeper measures of disclosure quality.
Overall, the study demonstrates that the capital market does not always respond positively to sustainability reporting. Market reactions can depend on industry characteristics, regulatory conditions, ownership structures, and investor orientation. For Indonesian companies, the challenge is therefore not simply to increase the amount of sustainability information disclosed, but to demonstrate a clear connection between ESG initiatives, risk management, operational efficiency, and long-term economic value.
Authors
Muhammad Luthfi — Universitas Diponegoro.
Raden Roro Karlina Aprilia Kusumadewi — Universitas Diponegoro.
Imam Ghozali — Universitas Diponegoro.
Research Source
Article Title: The Effect of Sustainability Reporting on Firm Value with Institutional Ownership as a Moderating Variable: Evidence from Consumer Non-Cyclicals Companies Listed on the Indonesia Stock Exchange (2019-2023)
Journal: International Journal of Scientific Multidisciplinary Research (IJSMR), Vol. 4 No. 8, 2026, pp. 1865–1878.
DOI: https://doi.org/10.55927/ijsmr.v4i8.142
Journal Link: https://journalijsmr.my.id/index.php/ijsmr
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