The research, titled The Effect of Sustainability Reporting on Firm Value with Financial Performance as An Intervening Variable in Indonesian Financial Sector Companies, 2020–2024, explores the relationship between corporate transparency, profitability, and investor valuation. Its findings matter for financial institutions and publicly listed companies seeking to integrate environmental, social, and economic responsibilities into their business strategies.
Why Sustainability Reporting Matters
Companies are increasingly expected to disclose more than their financial results. Investors, regulators, employees, customers, and communities also want information about how businesses manage environmental and social impacts, corporate governance, and long-term sustainability.
In Indonesia, sustainability reporting has developed alongside the implementation of Financial Services Authority Regulation No. 51/POJK.03/2017 on Sustainable Finance. The regulation requires financial services institutions, issuers, and public companies to prepare sustainability reports regularly.
For financial institutions, transparent reporting can demonstrate accountability and communicate how a company addresses sustainability-related risks and responsibilities. However, publishing a report does not necessarily mean that investors will immediately assign a higher market value to the company.
The study by Fadillah, Jalaluddin, and Fuadi highlights this distinction. Sustainability disclosure may support better financial performance, but investors may not reward disclosure alone unless they can also see its connection to business results.
How the Researchers Examined Indonesian Financial Companies
The researchers used a quantitative approach based on secondary data from annual reports, sustainability reports, and financial statements of companies listed on the Indonesia Stock Exchange.
The observation period covered 2020 through 2024. From an initial population of 106 financial sector companies, the researchers selected 38 companies that met their criteria, including consistent sustainability reporting and complete financial information. Companies reporting losses, measured through negative return on assets and return on equity, were excluded.
The final sample comprised 190 company-year observations, representing 38 companies over five years.
To measure sustainability disclosure, the researchers used the Sustainability Report Disclosure Index (SRDI), based on Global Reporting Initiative (GRI) indicators. Financial performance was assessed using Return on Assets (ROA), which measures how effectively a company uses its assets to generate profit. Company value was measured using the Price-to-Book Value (PBV) ratio, which compares a company’s market value with its book value.
The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4. In practical terms, this method enabled the researchers to examine both the direct relationships between the variables and whether financial performance helped explain the relationship between sustainability reporting and company value.
Four Key Findings From the Study
The results revealed four important relationships between sustainability disclosure, financial performance, and market valuation.
1. Sustainability disclosure was associated with lower company value directly.
The analysis found a negative and statistically significant relationship between sustainability reporting and company value, with a coefficient of −0.235 and a p-value below 0.001. This means that, within the study’s model and observation period, greater disclosure was associated with lower market valuation when the direct relationship was examined.
The result does not establish that sustainability reporting causes company value to decline. Instead, it shows that the relationship in the sampled companies was negative after accounting for the model’s specified variables. The authors suggest that investors may still place greater emphasis on financial performance or may view sustainability reporting primarily as a compliance requirement rather than a direct source of value.
2. Sustainability reporting was positively associated with financial performance.
The researchers found a positive and statistically significant relationship between sustainability disclosure and financial performance, with a coefficient of 0.321 and a p-value below 0.001.
This suggests that companies with greater sustainability disclosure also tended to report stronger financial performance in the study’s model. Transparent sustainability practices may be connected with stakeholder trust, corporate reputation, and operational improvements, although the research design does not establish these mechanisms as proven causes.
3. Stronger financial performance was associated with higher company value.
Financial performance had a positive and statistically significant relationship with company value, with a coefficient of 0.355 and a p-value below 0.001.
The finding reinforces the importance of profitability in market valuation. Investors may place greater confidence in companies that demonstrate an ability to use their assets effectively and generate financial returns.
4. Financial performance helped explain the relationship between sustainability reporting and company value.
The mediation analysis identified a positive and statistically significant indirect relationship between sustainability disclosure and company value through financial performance. The reported coefficient was 0.114, with a p-value of 0.005.
This result provides the study’s central insight: sustainability reporting was negatively associated with company value directly, yet positively associated with value indirectly through financial performance. The two findings are not contradictory because they describe different pathways in the statistical model.
The researchers also reported an average sustainability disclosure index of 0.56, meaning that sampled companies disclosed approximately 56% of applicable GRI-based reporting items. The average PBV was 1.31, indicating that the market valued the sampled companies, on average, above their book value.
What the Findings Mean for Businesses and Investors
The results suggest that companies should approach sustainability reporting as part of a broader business strategy rather than treating it solely as a reporting obligation.
For corporate managers, the practical challenge is to connect sustainability commitments with operational decisions, resource efficiency, risk management, and financial outcomes. Companies can strengthen the usefulness of their reports by explaining not only which sustainability activities they undertake, but also how those activities relate to business performance and long-term plans.
For investors, the findings underline the importance of examining sustainability disclosures alongside financial statements and other relevant information. A sustainability report can provide useful context, but it should not be treated as sufficient evidence of stronger company value on its own.
Regulators and policymakers may also find the results relevant when considering how sustainability disclosures can provide meaningful, comparable information to market participants. Clear reporting standards and credible disclosures can help stakeholders assess corporate commitments, although this study does not determine which regulatory changes would be most effective.
The findings should be interpreted within the study’s limitations. The analysis covered only selected financial sector companies listed on the IDX from 2020 to 2024, and its statistical model explained 10.3% of the variation in financial performance and 12.8% of the variation in company value. Other factors not included in the model may also influence these outcomes. The results therefore should not be generalized automatically to all industries or interpreted as proof of causation.
Researchers’ Perspective: Sustainability Must Connect With Performance
Fadillah, Jalaluddin, and Fuadi of Universitas Syiah Kuala conclude that sustainability disclosure may contribute to company value when it is accompanied by improved financial performance. Their analysis suggests that transparent reporting alone may not be enough to produce a positive direct market response.
The authors recommend integrating sustainability practices into corporate strategy and linking them to measurable operational and financial improvements, rather than treating sustainability reporting merely as a compliance exercise.
For Indonesian financial companies, the message is that disclosure and performance should work together. Sustainability reports can communicate a company’s commitments, while financial results provide another important measure of how effectively the company manages its resources. The study offers evidence that the relationship between sustainability reporting and market value is complex and depends, in part, on the role of financial performance.
Author Profiles
Sofhia Intan Fadillah is a researcher affiliated with Universitas Syiah Kuala. Her contribution to this article focuses on sustainability reporting, financial performance, and company value in Indonesia’s financial sector.
Jalaluddin is a researcher affiliated with Universitas Syiah Kuala and the corresponding author of the study. His listed contact email is jalaluddin.fe@usk.ac.id. The article examines corporate financial performance and sustainability disclosure in relation to market valuation.
Raida Fuadi is a researcher affiliated with Universitas Syiah Kuala and a co-author of the study on sustainability reporting and company value.
The source article does not specify the authors’ academic degrees or individual fields of expertise beyond the subject of the research; these details have therefore not been inferred.
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