The Effect of ESG Disclosure and Debt Covenant on Company Size with Profitability as a Moderation Variable in Energy Sector Companies on the Indonesia Stock Exchange for the 2021–2025 Period

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FORMOSA NEWS - Jawa Barat - ESG Disclosure Boosts Energy Company Size, While Profitability Shapes Impact. Environmental, social, and governance (ESG) disclosures significantly drive business growth and corporate expansion in the energy sector, according to recent research. Conducted by Ryan Hendrico Wijaya and Dyah Mieta Setyawati from Universitas Gunadarma, the study examined energy sector companies listed on the Indonesia Stock Exchange (IDX) across the 2021–2025 period. Published in the Formosa Journal of Applied Sciences, the research highlights that corporate sustainability transparency is no longer just a regulatory checkbox, but a vital economic driver that helps firms scale their assets and attract essential capital.

In recent years, global business competition and regulatory frameworks—such as POJK No. 51/POJK.03/2017 regarding sustainable finance—have placed immense pressure on corporations to adopt sustainable practices. This issue is acutely relevant in Indonesia's energy sector, which remains heavily dependent on fossil fuels and contributes significantly to carbon emissions, even as the nation works toward its Net Zero Emission 2060 targets. Within this context, company size serves as a critical indicator of operational capacity, resource accessibility, and long-term economic viability. However, empirical debates persist regarding how non-financial disclosures like ESG and debt covenants genuinely influence corporate growth, prompting researchers to explore the moderating role of profitability.

To uncover these dynamics, the researchers utilized a quantitative research design relying on secondary data extracted from official corporate financial statements and sustainability reports available on the IDX website. Out of an initial population of 91 energy companies, a targeted sample of 15 firms was selected using purposive sampling over the five-year observation window from 2021 to 2025. The data processing was executed using Eviews 13 software, employing panel data regression via the Fixed Effect Model (FEM) with cross-section weights, alongside Moderated Regression Analysis (MRA) to evaluate the interaction effects of profitability.

The empirical analysis yielded several critical findings regarding corporate growth in the energy sector:

• Positive Impact of ESG Disclosure: ESG disclosures demonstrated a direct, positive effect on company size, supported by a regression coefficient of 0.464352 and a probability value well below the threshold ($0.0001 < 0.05$). Comprehensive ESG reporting successfully reduces information asymmetry, builds stakeholder trust, and attracts investor capital to accelerate asset growth.
  
• Insignificant Role of Debt Covenants: Debt covenants, proxied by the Debt to Asset Ratio (DAR), showed no statistically significant effect on company size, registering a probability of 0.1231. This indicates that asset expansion in energy firms is frequently funded through retained earnings or equity rather than heavily relying on debt instruments.
  
• The Moderating Role of Profitability: Return on Assets (ROA) significantly moderated the relationship between ESG disclosure and company size, yielding an interaction probability of 0.0235. Interestingly, the negative interaction coefficient (-2.344770) reveals that profitability weakens the positive impact of ESG disclosure. For firms with lower profits, ESG reporting is vital for building legitimacy, whereas highly profitable firms already possess strong financial signals that overshadow the incremental marketing weight of ESG disclosures. Conversely, profitability did not significantly moderate the impact of debt covenants.
  

The implications of this research extend far beyond academic circles, offering actionable insights for industry practitioners, institutional investors, and regulatory bodies. For energy sector executives, the findings underscore that robust ESG transparency functions as a strategic lever to secure external funding, alleviate political and public scrutiny, and enhance corporate reputation. For investors, the study demonstrates that profitability and non-financial sustainability metrics must be evaluated together to accurately gauge a firm's long-term trajectory. Furthermore, policymakers can leverage these insights to refine corporate governance standards and encourage transparent reporting frameworks that align with Indonesia's broader green transition goals.

Author Profiles
Ryan Hendrico Wijaya¹, S.E., M.Ak. – Researcher and academic at Universitas Gunadarma specializing in financial accounting, corporate governance, and sustainability reporting.
Dyah Mieta Setyawati², S.E., M.Si. – Lecturer and researcher at Universitas Gunadarma with core expertise in capital markets, financial management, and corporate performance.

Source
Ryan Hendrico Wijaya, Dyah Mieta Setyawati. The Effect of ESG Disclosure and Debt Covenant on Company Size with Profitability as a Moderation Variable in Energy Sector Companies on the Indonesia Stock Exchange for the 2021-2025 Period. Formosa Journal of Applied Sciences (FJAS), Vol. 5, No. 9, hlm. 1869–1888
DOI : https://doi.org/10.55927/fjas.v5i9.115
URL: https://journalfjas.my.id/index.php/fjas