Journal of Economics, Business, and Accountancy Ventura Volume 15, No.

2, August 2012, pages 257 – 272

Accreditation No. 110/DIKTI/Kep/2009

THE IMPACT OF SUSTAINABILITY REPORTING

ON COMPANY PERFORMANCE

Annisa Hayatun N. Burhan

Wiwin Rahmanti
Gadjah Mada University
E-mail: [email protected]
Humaniora, Bulaksumur, Yogyakarta 55281, DIY, Indonesia

ABSTRACT
Sustainability reporting and company performance are the two factors that need to be stud-
ied in recent years. Sustainability Reporting is non-financial report that consists of three ele-
ments which are economic performance, environmental performance, and social perform-
ance. This research attempts to examine the relationship between sustainability reporting as
a whole and each of the elements of sustainability reporting with company performance. It
consists of 32 companies listed on Indonesian stock exchange during the period of year 2006-
2009. The independent variables are sustainability reporting, economic performance disclo-
sure, environmental performance disclosure, and social performance disclosure. These vari-
ables are measured by means of disclosure index. Sustainability Reporting Guidelines from
Global Reporting Initiative (GRI) is used as the basis of calculating the index score. The de-
pendent variable is Return on Asset (ROA) as a measure of economic performance. This re-
search uses secondary data collected from company website and Indonesian stock exchange.
The result shows that sustainability reporting influences company performance. However,
partially, only social performance disclosure influences the company performance.

Key words: Sustainability reporting, ROA, Global Reporting Initiative.

DAMPAK KESINAMBUNGAN PELAPORAN PADA KINERJA PERUSAHAAN

ABSTRAK
Kesinambungan pelaporan dan kinerja perusahaan merupakan dua faktor yang menarik
untuk dipelajari dalam beberapa tahun terakhir. Kesinambungan pelaporan adalah laporan
non-keuangan yang terdiri atas tiga unsur yaitu kinerja ekonomi, kinerja lingkungan dan
kinerja sosial. Penelitian ini bertujuan untuk menguji hubungan antara pelaporan
keberlanjutan secara keseluruhan dan masing-masing unsur pelaporan keberlanjutan
dengan kinerja perusahaan. Sampel penelitian ini adalah 32 perusahaan yang terdaftar di
Bursa Efek Indonesia selama periode tahun 2006-2009. Variabel bebas adalah pelaporan
berkelanjutan, pengungkapan kinerja ekonomi, pengungkapan kinerja lingkungan, dan
pengungkapan kinerja sosial. Variabel ini diukur dengan menggunakan indeks
pengungkapan. Panduan kesinambungan pelaporan dari Inisiatif Pelaporan Global (GRI)
digunakan sebagai dasar perhitungan nilai indeks. Variabel terikat adalah Return on Asset
(ROA) sebagai ukuran kinerja ekonomi. Penelitian ini menggunakan data sekunder yang
dikumpulkan dari situs perusahaan dan Bursa Efek Indonesia. Hasil penelitian menunjukkan
bahwa kesinambungan pelaporan berpengaruh terhadap kinerja perusahaan. Namun, hanya
pengungkapan kinerja sosial yang mempengaruhi kinerja perusahaan.

Kata Kunci: Kesinambungan Pelaporan, ROA, Inisiatif Pelaporan Global.

257
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

INTRODUCTION lenge of environmental change such as

Recently, companies have been called upon global warming, health care, poverty, and
to fulfill the needs of wide range of stake- energy saving. In addition, many multina-
holders who pay attention to company’s tional business leaders are already demon-
value. They are interested in understanding strating that tomorrow’s most successful
the approach and performance of a company companies will be those that are willing to
in managing the sustainability such as eco- devote time and effort to incorporate social
nomic, environmental, and social aspects, responsibility into their business models (in-
including the potential for value created dustryweek.com). Hence, many multina-
from managing sustainability. Besides pro- tional companies began to take sustainability
viding financial information for sharehold- reporting seriously. The term of sustainabil-
ers, a company needs to publish non- ity report is recently used to cover the dis-
financial information as well. Social respon- closure of a company’s commitment on sus-
sibility reporting is the communication about tainable development. Many companies
a company’s responsibility for social and worldwide that have recently released sus-
environmental aspects surrounding the busi- tainability report have a commitment to sus-
ness. This reflects that companies owe tainable development. Responsibility to-
stakeholders an annual accounting of their wards environmental and social aspects
social and environmental performance as the which businesses have on the community is
financial information they provide to share- said to be related to the sustainable devel-
holders. opment.
A survey conducted by KPMG shows Beside the increasing of global envi-
that the growth of the number of companies ronmental awareness and the campaign of
issuing environmental, social report or sus- sustainable development, the increasing
tainability reports, in addition to annual fi- trend of sustainability reporting is also sup-
nancial reports, is significant ported by the increasing number of guide-
(www.industryweek.com). Nearly, more lines provided by various government or-
than half of the world’s 250 largest compa- ganizations and industry bodies (Basamalah
nies issue sustainability reports (White, et al, 2005). Global Reporting Initiative
2005). Reporting rates are high in developed (GRI) is one of them. It is a network-based
countries such as France, Germany, Japan, organization that has pioneered the devel-
the United Kingdom, and the United States. opment of the sustainability reporting
Reporting rates are highest in certain indus- framework. Many organizations follow the
tries, e.g. chemicals and synthetics, pharma- framework and standard of disclosing sus-
ceuticals, electronics, and computers, auto- tainability report according to GRI.
motive, and oil and gas since the activities of The perspective of sustainability pro-
those companies are sensitive to the envi- vides a framework to create value which
ronment (Choi, 2006, p. 162). refers to both achieving sufficient profits and
The increase in globally environmental to satisfying the request of a diverse group
awareness redirects the attention of compa- of stakeholder (Lopez et al, 2007). There is a
nies to environmental sensitivity. Climate growing recognition among investment ana-
change and global warming become a top lyst that numerous business drivers upstream
concern for performance of a company. This of a company’s profit and loss statement,
encourages companies to pay more attention including environmental, social, and govern-
to the environment surrounding them. High ance, contribute to long-term financial per-
profit will no longer be the most important formance and investment returns (KPMG,
variable in business success. It means that 2008). There is also a perception that or-
selling products or delivering services ganizations are producing sustainability re-
should be followed by addressing the chal- ports primarily as a public relations exercise

258
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

to give impression of concern over social which conduct activity in relation with natu-
and environmental issues (Hubbard, 2008). ral resources must allocate budgets for cor-
By disclosing sustainability reports, organi- porate social responsibility programs, and
zations will have generalized positive reper- the programs must be run according to gov-
cussions, where the aim is to fulfill the needs ernment regulations. Violation of the law is
of different stakeholder, while also be bene- subject to sanctions depending on govern-
fited from the perspective of operations, fi- ment regulations. By this regulation, the is-
nance, and reputation (Blyth, 2005, p.29 in sue of how to disclose the corporate social
Lopez et al, 2007). Investors are increasingly responsibility practices in Indonesia and
seeking to invest in socially responsible in- whether it affects the performance of the
vestments (SRI) in the companies that fol- companies become obvious.
low good social and environmental prac- Researches on the relationship between
tices. Specific indexes have been created in corporate social responsibility practices or
developed country such as US-based kinder disclosure and corporate financial perform-
and Dow Jones Sustainability index to assist ance have been conducted in many coun-
investors who are willing to invest in so- tries. The result of the researches, however,
cially responsible companies. This develop- is still inconsistent. Also, previous re-
ment shows that the pressure for sustainabil- searches used corporate social responsibility
ity reporting will continue to increase. Firms reporting that focus only on environmental
and investors recognize that investing in ac- and social disclosure while the concept of
cordance with sustainability principle has sustainability reporting involves not only
the capacity to create long term value (Beb- environmental and social performance but
bington, 2001). These principles constitute a also the economic performance. This study
differentiating elements in establishing in- is one of the continuances of the previous
vestments portfolio, as stakeholder believe study about CSR (Corporate Social Respon-
accredited practices of corporate social re- sibility). Therefore, this research attempts to
sponsibility lead to good economic-financial analyze the relationship between the disclo-
performance (Lopez et al, 2007). sure of sustainability performance and the
Many articles state that sustainability impact towards company’s performance us-
has a capacity for long-term financial per- ing sustainability reporting framework de-
formance, investment return, and also value veloped by Global Reporting Initiative, a
creation which refers to achieving sufficient case study of Indonesian Stock Exchange.
profits. Companies that are apathetic to their This research is expected to be useful for
environmental responsibility might experi- companies to not only take responsibility of
ence eventual crashes on their stock price if the environment but also maintain sustain-
their investors are rational in considering the ability practices since it may contributes to
future value of the firm based on its present their financial performance.
state of environmental responsibility
(Ngwakwe, 2008). Also, companies that pol- THEORETICAL FRAMEWORK AND
lute their environment might experience HYPOTHESIS
gradual depletion in earnings which could Legitimacy Theory
make their future solvency eroded. Thus, Deegan (2000) states that legitimacy theory
social responsibility behavior or sustainabil- asserts that organizations continually seek to
ity practices may contribute to financial per- ensure that they operate within the bounds
formance of a company. and norms of their respective societies, that
In Indonesia, corporate social responsi- is, they attempt to ensure that their activities
bility implementation is still a relatively new are perceived by outside parties as being
concept. Undang-undang Perseroan Terba- legitimate. Legitimacy theory relies upon the
tas 2007 chapter 5 article 74 states that firms notion that there is a “social contract” be-

259
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

tween the organization in question and the lated. It can be acknowledged that this per-
society in which it operates. The concept is spective can be extended to a notion that all
used to represent the multitude of implicit stakeholders also have a right to be provided
and explicit expectations that society has with information about how the organization
about how the organization should conduct is impacting on them, perhaps through pollu-
its operations. It is assumed that society al- tion, community sponsorship, provision of
lows the organization to continue operations employment, safety initiatives, and so on,
to the extent that it generally meets their ex- even if they choose not to use the informa-
pectations. Legitimacy theory emphasizes tion, and even if they can not directly have
that the organization must appear to consider an impact on the survival of the organization
the rights of the public at large, not merely (Deegan 2000, p. 269).
those of its investors. Failure to comply with
societal expectations may lead to sanctions Sustainability Reporting
being imposed by society. According to this Sustainability reporting is a new term which
perspective, a company would voluntarily is widely used to explain the communication
report their activities if management per- of the companies’ effect on social, environ-
ceived that those activities were expected by mental and economic performance. Sustain-
communities in which it operate. ability reports are also referred to as “triple
bottom line reports” (profits, people, and
Stakeholder Theory planet). Many large companies publish such
The basic perception of the stakeholder per- kind of reports especially for the company
spective developed in 1984 by Freeman which is socially environmentally sensitive
(Freeman, 1984). Stakeholder theory has such as oil and gas, mining, chemical, auto-
both an ethical (moral) or normative branch motive, computers, and electronics (Choi,
and a positive (managerial) branch. The 2006, p. 158). It is published to fulfill the
moral (normative) perspective of Stake- need of wide range of stakeholders which is
holder Theory argues that all stakeholders not only limited to investors and creditors,
have the right to be treated fairly by an or- but also include employees, customers, sup-
ganization, and the issues of stakeholder pliers, governments, activist groups, and the
power are not directly relevant. Regardless general public’s.
of whether stakeholder management leads to Sustainability reporting is closely related
improved financial performance, managers with corporate social responsibility report-
should manage the organization for the ing. It has a voluntary character. Social re-
benefit of all stakeholders. One definition of sponsibility reporting refers to the measure-
stakeholders is provided by Freemand and ment and communication of information
Reed: about company’s effect on employee wel-
Any identifiable group or individual who can fare, the local community, and the environ-
affect the achievement of an organization’s ment. Information on company welfare may
objectives is affected by the achievement of involves working conditions, job security,
an organization’s objectives. equal opportunity, workforce diversity, and
Clearly, many people can be classified child labor. Environmental issues may in-
as stakeholders based on the above defini- clude the impact of production process,
tion, for example, shareholder, creditors, products, and services on air, water, land,
government, media, employees, employees’ biodiversity, and human health (Choi, 2006,
families, local communities, local charities, p. 158).
future generations, and so on. Within the However, corporate social responsibility
ethical (moral) or normative perspective of reporting focuses only on environmental and
Stakeholder Theory, all stakeholder have social disclosure, while the concept of sus-
certain minimum rights that must not be vio- tainable development tied in sustainability

260
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

reporting involves broader area that covers growth). In addressing the issue, Hubbard
environmental, social, and economic per- (2008) stated that the Brundland Commis-
formances. As the campaign of sustainable sion (WCED 1987) developed the term “sus-
development has been increase, many corpo- tainable development” defining as:
rate non-financial reports, corporate social “Development that meets the needs of the
responsibility reports now have been re- present without compromising the ability of
packaged as sustainability report (Lopez et future generations to meet their own needs”
al, 2007). It is argued that globally we must ensure
Hubbard (2008) states the purpose of that our generation’s consumption patterns
sustainability reporting is to provide infor- do not negatively impact on future genera-
mation which holistically assesses organiza- tion’s quality of life (Deegan, 2000, p. 300).
tional performance in a multi-stakeholder In 1998, Elkington developed the term “tri-
environment. In the social area, it is focus on ple bottom line” to argue the case for report-
contributing back to the society and commu- ing environmental and social performance
nity, providing growth and development op- together with economic performance. The
portunities for employees and improving triple bottom line concept implied that eco-
relationships and practices for customers, nomic, environmental, and social perform-
suppliers, governments and communities. ance were to be balanced and were of equal
The notion of reporting against the three importance (Hubbard, 2008). Elkington’s
components (or bottom lines) of economic, first theory is capitalism must satisfy legiti-
environmental, and social performance is mate demands for economic performance.
directly tied to the concept and goal of sus- Elkington echoes Adam Smith’s theory that
tainable development (Deegan, 2000, p. the firm has one and only one goal to satisfy
289). the desires of shareholders by making prof-
Triple bottom line reporting, if properly its. However, profit may not be attainable if
implemented, will provide information to the environment in which the business oper-
enable others to assess how sustainable an ates is neglected. Hence, according to
organization’s or a community’s operations Elkington, firms must also be accountable
are. The perspective taken is that for an or- for social and environmental performance.
ganization to be sustainable (long-term per- The economic, social and environmental
spective), it must be financially secure (as consciousness of corporations, the tripod
evidenced by such measures as profitability), goal, creates a balance that makes their op-
minimize or ideally eliminate its negative erations and actions sustainable A corpora-
environmental impacts and act in conformity tion which accommodates the triple bottom
with societal expectations. These three fac- line is contributing to sustainable develop-
tors are obviously highly interrelated ment (Ngwakwe, 2008).
(Deegan, 2000, p.289). Corporate responsibility strategies are
perceived to be related to sustainable devel-
The Concept of Sustainable Development opment. Sustainability philosophy assumes
The development of non-financial reporting that we abandon a narrow version of a clas-
(which typically for organizations beginning sical economic theory and develop corporate
the sustainability reporting journey) began in strategies that include goals that go beyond
the US in the 1980s. The key focus at that just maximizing shareholder’s interest. At-
time was on environmental reporting, as ex- tention is directed to the demands of a wider
ternal stakeholders became concerned with group of stakeholders since the firm’s suc-
the impacts of organizations on a wide vari- cess depends on stakeholder’s satisfaction
ety of community resources (eg air, land and (Bucholz and Roshenthal, 2005; Freeman,
water emissions, waste and whether the re- 1984; Hardjano and Klein, 2004; Michael
sources would be sufficient for future and Gross, 2004 in Lopez et al, 2007)

261
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

Companies are becoming aware that provement in the quality of life and alarming
they can contribute to sustainable develop- information about the state of the environ-
ment by reorienting their operations and ment and the continuing burden of poverty
process (Lopez et al, 2007). Sustainable de- and hunger on millions of people. It raises
velopment is obtained through the manage- an issue about how to create new and inno-
ment of environmental, natural, economic, vative choices and ways of thinking. New
social, cultural and political factors. These knowledge and innovations in technology,
issues are interrelated and therefore should management, and public policy are challeng-
not be considered independently (Sage, ing organizations to make new choices in the
1999, p. 196 in Lopez et al, 2007). way their operations, products, services, and
Furthermore, investors are increasingly activities impact the earth, people, and eco-
seeking to invest in socially responsible in- nomics.
vestments (SRI) in those companies deemed It is the Global Reporting Initiative’s
to be following good social and environ- (GRI) mission to fulfill this need by provid-
mental practices (Hubbard, 2008). They also ing a trusted and credible framework for sus-
need social, ethical, and environmental in- tainability reporting that can be used by or-
formation. Naturally, a company which is ganizations of any size, sector, or location.
sustainable will be less risky than one which Sustainability reports based on GRI Report-
is not. Consequently, most large companies ing Framework disclose outcomes and re-
in their reporting mention sustainability and sults that occurred within the reporting pe-
frequently it features prominently (Aras and riod in the context of the organization’s
Crowther, 2009). Since the social, ethical, commitments, strategy, and management
and environmental (SEE) performance of a approach. The GRI Reporting Framework is
corporation may directly impact on its finan- intended to serve as generally accepted
cial position, the corporation has to provide framework for reporting on an organiza-
sound (SEE) information to investors tion’s economic, environmental, and social
(Hummels and Timmer, 2004). performance.

Global Reporting Initiative (GRI) Hypothesis Development

Global Reporting Initiative (GRI) is a net- Researches about the effect of corporate so-
work-based organization that has pioneered cial performance on financial performance
the development of the world’s most widely have been conducted in many countries. The
used sustainability reporting framework. result, however, is still inconsistent. Wright
Sustainability reports based on the GRI and Ferris (1997) found a negative relation-
framework can be used to benchmark organ- ship, Teoh et al (1999) found no relationship
izational performance with respect to laws, between Corporate Social Responsibility and
norms, codes, performance standards and financial performance, and Aupperle et al
voluntary initiatives; demonstrate organiza- (1985) also found no relationship between
tional commitment to sustainable develop- Corporate Social Performance and profit-
ment; and compare organizational perform- ability. Another research conducted by
ance. GRI promotes and develops this stan- Russo and Fouts (1997), Nakao et al (2007),
dardized approach to fulfill demand for sus- King and Lenox (2001) and Cohen and Ko-
tainability information. nar (2003) obtained the results that a firm’s
As economy globalizes, new opportuni- environmental performance do have a statis-
ties to generate prosperity and quality of life tically significant positive relationship with
that are arising are accompanied by new the financial performance. Research done by
risks to the stability of the environment. Ac- Lougee and Wallace (2008) comparing US
cording to Global Reporting Initiative companies listed in Domini 400 and S&P
(2011), there is a contrast between the im- 500 index, showed that companies with

262
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

more corporate social responsibility invest- financial performance. The sustainability

ments generated higher Return of Assets, practices are viewed from the company’s
suggesting that investments in corporate so- innovation on environments. Using the sta-
cial responsibility are consistent with profit tistical test, it reveals that environmental
and long-term value maximization. innovations show a linear relationship with
Almost all of those researches use Re- the financial performance of Japanese auto-
turn on Assets, Return on Equity, and motive and electronics firms included in the
Tobin’s Q as the measurement for the finan- study. Furthermore, research conducted by
cial performance. The variation is on the Nakamura (2011) with a data set of 3,237
measurement of environmental performance. Japanese firms states that in the short term,
Some of them use an index like TRI (Toxic environmental investment does not affect
Release Inventory), Nikkei Environmental firm performance significantly, whereas in
Management Survey and CEP (Rankings of the long term environmental investment in-
superiors environmental performance). creases firm performance significantly.
There is also different measurement like To- Sustainability reports involves disclo-
tal Emission (by calculating the log of total sure on company’s sustainability perform-
facility emission of toxic chemicals), Rela- ance viewed from three aspects, they are
tive Emission (measured by 4 digit Standard economics, environmental, and social. Each
Industry Classification-SIC), and Industry aspect has its own performance indicator to
Emissions (measure the degree to which a measure each performance. The framework
firms tends to operate in industry where pro- and guidelines for reporting such reports has
duction entails pollution). been arranged in Global Reporting Initiative.
Corporate Social Responsibility (CSR) It has been used by wide range of compa-
is an important issue in contemporary inter- nies’ around the world as a base to disclose
national debates. Central to CSR is a con- sustainability reports.
cern for sustainability, particularly for envi- Research conducted by Sekarsari (2008)
ronmental sustainability, as this is crucial for had approved that there is a relationship be-
long-term success and even survival even in tween environmental disclosure and firm’s
the financial terms by which firms normally profitability (measured in ROE, ROI, and
judge their success. Indeed many corporate NPM). Similar research conducted by Maha-
reports, which used to be designated as envi- rani (2003) also shows that there is a rela-
ronmental reports and subsequently as CSR tionship between environmental disclosure
reports have now been repackage as sustain- with stock price and stock return. Sitepu
ability reports (Aras and Crowther, 2009). (2009) attempted to find a possible relation-
Several previous researches have proved ship between corporate social responsibility
that sustainability practices have a relation- disclosure and firm’s financial performance.
ship with company’s financial performance. The results show that economic and envi-
Research conducted by Ngwakwe in 2008, ronmental performance disclosures have
in Nigeria, proves that firms which invest in significant positive relationship with finan-
social and environmental would have higher cial performance (measured by ROA), while
return on total assets (ROTA) compare to social performance disclosures does not
firms that do not invest. The variable of show significant relationship.
sust’;ainability practices is measured with
employee health and safety (EHS), Waste Models of Framework
Management (WM), and Community De- There are two models of framework will be
velopment (CD). Similar research also con- proposed. The first model is presented in
ducted in Japan by Cortez (2010) that at- Figure 1. The diagram in Figure 1 shows
tempts to find out the relationship between that the dependent variable, company’s per-
sustainable innovations and the impact on formance will be influenced by independent

263
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

Figure 1
Model 1
INDEPENDENT VARIABLE DEPENDENT VARIABLE

SUSTAINABILITY REPORTS COMPANY PERFORMANCE

Figure 1
Model 2
INDEPENDENT VARIABLE DEPENDENT VARIABLE
Disclosure of Economic

Disclosure of Environmental COMPANY PERFORMANCE

performance

Disclosure of Social performance

variable which is represented by sustainabil- agement approach might include three eco-
ity reports. Therefore, the hypothesis is: nomic aspects which are economic indica-
H1: The sustainability reports have an tors, market presence, and indirect economic
association with company’s performance. impact. There is also disclosure on the goals,
The second model of this research at- policy and additional related information
tempts to attest each component of sustain- (GRI, Sustainability Reporting Guidelines).
ability reports and its influence to company According to Sitepu (2009), the economic
financial performance. The disclosure of performance disclosure is approved to have
sustainability performance is divided into a positive relationship with company’s per-
three aspects, i.e. economic performance, formance. This research aims to reconfirm
environmental performance, and social per- the research result. Therefore the hypothesis
formance. The diagram is presented in Fig- is:
ure 2. H2: The disclosure of economic perform-
From the diagram in Figure 2, it can be ance has an association with company’s
inferred that each components of sustainabil- performance
ity performance will be tested whether each The environmental dimension of sus-
of those has an influence on company’s per- tainability concerns an organization’s im-
formance. Economic, environmental and pacts on living and non-living natural sys-
social performance disclosures are expected tems, including ecosystems, land, air, and
to have a significant influence on company’s water. The disclosure on environmental per-
performance. formance includes disclosure on manage-
The economic dimension of sustainabil- ment approach consist of environmental as-
ity concerns the organization’s impacts on pects such as materials, energy, water, bio-
the economic conditions of its stakeholders diversity, emissions, effluents, and waste,
and on economic systems at local, national, products and services, compliance, transport,
and global levels. The economic aspect re- and overall, then goals relevant to environ-
ported in sustainability reports is more on mental aspects, policy, organizational re-
the company’s contributions towards large sponsibility, training and awareness, moni-
economic system. The disclosure on man- toring and follow up, and additional contex-

264
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

tual information (GRI, Sustainability Re- Data for this research is secondary data
porting Guidelines). From the previous re- (annual report and sustainability report) col-
search, environmental performance disclo- lected from Indonesian Stock Exchange
sure is approved to have a positive relation- Website, the company’s website and Capital
ship with company’s performance (Sekar- Market Information Centre.
sari, 2008; Sitepu, 2009). This research at-
tempts to reconfirm those research results. Definition of Operational Variables
Thus, the hypothesis is: The dependent variable used as a measure of
H3: The disclosure of environmental per- company performance is return on assets
formance has an association with com- (ROA). Return on asset is one of profitabil-
pany’s performance ity ratios which measures the income or op-
The social dimension of sustainability erating success of a company for a given
concerns the impacts an organization has on period of time (Weygandt, 2007, p. 793). In
the social systems within which it operates. addition, ROA is known as the variable to
The social performance would be divided measure economic performance (Dincer,
into four aspects which are labor practices 2011; Nakamura, 2011) and more related to
and decent work, human rights, society, and efficiency compared to Return on Equity
product responsibility. The information to be (Lorenzo et al, 2009).
disclosed would be similar like economic The formula of ROA:
performance and environmental perform- Net Profit
ance where it consists of management ap- ROA = . (1)
Total Assets
proach, goals, policy, organizational respon- This research proposes two models to be
sibility, training and awareness, monitoring tested. In the first model, the independent
and follow up, and additional contextual in- variable is sustainability performance disclo-
formation. All of them would be reported sure index.
based on the relation on social aspects (GRI, Sustainability reports involves disclo-
Sustainability Reporting Guidelines). In sure on company’s sustainability perform-
Sitepu (2009), the statistical result shows ance viewed from three aspects, they are
that the social performance disclosure does economics, environmental, and social.
not influence the company’s performance. In Hence, in the second model there are three
order to reconfirm, the hypothesis will be independent variables. Those are:
developed as follows: 1. Economic performance disclosure
H4: The disclosure of social performance 2. Environmental performance disclosure
has an association with company’s per- 3. Social performance disclosure
formance Those four independent variables will be
measured by scoring index based on per-
RESEARCH METHOD formance indicators provided in Global Re-
Population, Sample, and Data sources porting Initiative Guidelines (GRI guide-
The population in this research is all compa- lines). Global Reporting Initiative (GRI)
nies listed in Indonesian Stock Exchange Sustainability Guidelines on Economic, En-
from the period of 2006-2009. The criteria vironmental, and Social Performance is the
for companies being selected are: most prominent current reporting guidelines
Non-financial companies listed continuously (Morhardt et al 2002). Research conducted
in Indonesian stock exchange between year by Dincer (2011) also suggests adopting the
2006-2009 GRI format as a CSR reporting model to be
Those companies publish annual report con- used by the firm for disclosing information.
tinuously from year 2006-2009 The formula to calculate the index score is:
Those companies publish sustainability re- n
port continuously from year 2006-2009 Index = . (2)
k
265
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

Table 1
Table of Sampling
Criteria N
Companies listed on Indonesian Stock Exchange 491
Financial Companies -110
381
Companies delisted during 2006-2009 -131
250
Companies do not publish sustainability report -218
Total Companies 32

Table 2
Sample Description Based on Industrial Sector
Industrial Sector Number of Company Percentage (%)
Mining 7 22
Trade, services and investment 6 19
Consumer goods 5 16
Basic industry and chemicals 5 16
Infrastructure, utilities, and transportation 4 12
Miscellaneous industry 2 6
Agriculture 2 6
Property and real estate 1 3
Total companies 32 100

Notes: The second model would be using mul-

n = number of index which is fulfilled by the tiple regression method. The equation is pre-
company, sented below:
k = the maximum index which should be Y = a + b1X1 + b2X2 + b3X3 + e, (4)
fulfilled by the company. where:
For measuring sustainability perform- Y = ROA (Return on Assets)
ance disclosure in total, the maximum index a = constant
which should be fulfilled is 50. In partial, the b1-3 = regression coefficient
maximum index for economic performance X1 = Economic performance disclosure in-
disclosure, environmental performance dis- dex
closure and social performance disclosure X2 = Environmental performance disclosure
are 7, 17, and 26 respectively. index
X3 = Social performance disclosure index
Empirical Model
For the first model, single linear regression Result and Discussion
is used. The model is presented below: Based on the data on Table 1, the number of
Y = a + b1X1, (3) companies that publish sustainability reports
where: continuously from 2006-2009 is less than
Y = company performance (ROA) 13%. It may be due to the concept of corpo-
a = constant rate social responsibility and sustainability
b1 = coefficient of regression reports are still relatively new for Indonesian
X1 = sustainability reports index. companies.
266
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

Table 3
Descriptive Statistic
Variable Mean Std. Deviation
ROA .102 .125
Sust .412 .226
Eco .574 .229
Env .344 .269
Soc .408 .239

Table 4
Model Summary
Adjusted R Std. Error of
Model R R Square
Square the Estimate
0.271a 0.073 0.066 12.105
a. Predictors: (Constant), X sus
b. Dependent variable: Y roa

Table 5
ANOVA
Sum of
Model Df Mean Square F Sig
Squares
Regression 1464.006 1 1464.006 9.999 0.002a
Residual 18463.920 126 146.539
Total 19927.926 127
a. Predictors: (Constant), X sus
b. Dependent variable: Y roa

The sample covers 8 industrial sectors. DATA ANALYSIS AND DISCUSSION

The majority sample is companies from min- First Model
ing industry (22%), followed by trade, ser- The coefficient correlation between the in-
vices and investment industry (19%). The dependent variables and the dependent vari-
description of sample based on industrial able (R) is 0.271 (see Table 4). It implies
sector is shown in Table 2. that the relationship between sustainability
The Table 3 describes that the mean reports and company’s performance (ROA)
value of ROA is 10.2%. The mean value of is 27.1 %. The coefficient of determination
sustainability report is 41.2%. It illustrates (R-square) is 0.073. This implies that only
that the sustainability reports only cover 7.3% of the variation of ROA is explained,
about 40% of the items that should be dis- or accounted for, by the variation of sustain-
closed according to GRI. The mean value of ability reports. The rest, which is 92.7 %, is
economic performance is the highest explained by other factors.
(57.4%) compared to it of environment
(34.3%) and social performance (40.8%). It F-test
shows that most of companies disclose eco- Regression coefficients were tested using F-
nomic performance more than environment test to determine the validity of regression
and social performance. models to be used. For the first model, the
value of F presented on the ANOVA table as
267
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

Table 6
Coefficients
Standardized
Unstandardized coefficients
Model coefficients t Sig
B Standard Errors Beta
(Constant) 4.107 2.206 1.861 0.065
Xsus 14.885 4.709 0.271 3.161 0.002
a. Dependent variable: Y roa

Table 7
Model Summary
Adjusted R Standard Error of the
Model R R-Square
Square Estimate
a
0.524 0.274 0.248 0.803
a. Predictors: (Constant), ln Yt-1, X1(Eco), X2(Env), X3(Soc)
b. Dependent variable: ln Y (ROA)
Notes: The lag variable, ln Yt-1, should be included in this second regression model due to
autocorrelation problem.

Table 8
ANOVA
Sum of
Model df Mean Square F Sig
Squares
Regression 27.306 4 6.826 10.583 0.000a
Residual 72.246 112 0.645
Total 99.552 116
a. Predictors: (Constant), ln Yt-1, X1(Eco), X2(Env), X3(Soc)
b. Dependent variable: ln Y (ROA)

shown in Table 5 is 9.999 which is higher Second Model

than the F table. With the degree of freedom The coefficient correlation (R) is 0.524 (see
1 and residual 126, the F table is 3.84 and Table 7). It means that the value of coeffi-
the probability (0.002) is smaller than 0.05. cient correlation between the independent
Therefore, the first regression model can be variables and the dependent variable is
used for the next analysis. 0.524. It implies that the relationship be-
tween sustainability performance (economic,
T-test environmental, and social) and company’s
The result of t-test for the first hypothesis is performance (ROA) is 52.4 % which is
presented in the Table 6. The data in Table 6 strong enough. The adjusted R-square is
shows that the coefficient for independent 0.248. This implies that 24.8% of the varia-
variable is 14.885 and the probability is tion of ROA is explained, or accounted for,
0.002 (p value < 0.05). It can be inferred that by the variation of sustainability perform-
the sustainability reports has a positive asso- ance. The rest, amounting at 75.2%, is ex-
ciation to company’s performance. Thus, the plained by other factors.
first hypothesis (H1) that sustainability re-
ports has an association with the company’s F test
performance is accepted. The value of F in the ANOVA table as
shown in Table 8 is 10.583, much higher

268
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

Table 9
Coefficients
Unstandardized Standardized Co linearity
Model Coefficients Coefficients t Sig Statistics
B Std. Errors Beta Tolerance VIF
(Constant) 0.921 0.264 3.483 0.001
X1 (Eco) -0.533 0.540 -0.133 -0.986 0.326 0.355 2.815
X2 (Env) -0.057 0.504 -0.017 -0.112 0.911 0.284 3.515
X3 (Soc) 1.184 0.536 0.313 2.208 0.029 0.323 3.092
Ln Yt-1 0.455 0.086 0.439 5.286 0.000 0.000 1.065

than the value of the F table. With the degree (ROA). However, further analysis shows
of freedom 4 and residual 112, the value of F only social performance disclosure that in-
table is 2.45 and the probability (0.000) is fluences ROA.
smaller than 0.05. It means that the second The result of this present research is
regression model can be applied for the next conflicting with the previous research. First,
analysis. partially the result of the test shows that
economic performance disclosure does not
T-test significantly influence company’s perform-
From the Table 9, it can be described that: ance. This result is in contradiction with the
The coefficient of variable X1 (eco) is - research result of Sitepu (2009) that shows a
0.5333 shows that the variable has negative significant relationship between economic
association to dependent variable. However, performance disclosure and financial per-
the probability (0.326) is greater than 0.05 (p formance.
value > 0.05). It means that economic per- Second, the result of this research shows
formance disclosure does not influence that the environmental performance disclo-
company’s performance. Therefore, the sec- sure does not influence company’s perform-
ond hypothesis (H2) is rejected. ance. This is also in contradiction with
The coefficient of variable X2 (env) is - Sitepu (2009), and Sekarsari (2008) that find
0.057 illustrates that the variable has nega- that the disclosure of environmental per-
tive association to dependent variable. Nev- formance affect the performance of the
ertheless, the probability is 0.911 which is company. In addition, this research result
much greater than 0.05 (p value > 0.05). It does not support Ngwakwe (2009) and Cor-
implies that environmental performance dis- tez (2010) which come up with the conclu-
closure does not influence company’s per- sion that environmental performance posi-
formance and the third hypothesis (H3) is tively influences company’s performance.
rejected. Third, this present research shows that
The coefficient of variable X3 (soc) is 1.184 the social performance disclosure does sig-
demonstrates that the variable has positive nificantly influence company’s performance.
association to dependent variable and the Again, this is in contradiction with Sitepu
probability is 0.029 which is smaller than (2009) which come up with the conclusion
0.05 (p value < 0.05). It indicates that social that social performance disclosure does not
performance disclosure does influence com- significantly influence company’s perform-
pany’s performance significantly and the ance. However, this result is in conformity
forth hypothesis (H4) is accepted. with Ngwakwe (2008) that shows positive
It can be implied that the sustainability relationship between social performance and
reports influences company’s performance company’s performance.

269
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

This research result confirms to the present without compromising the ability of
statement that many existing research results future generations to meet their own needs.
are inconclusive, reporting positive or some- It means that, in running the business, a
times negative results. Based on McWilliams company need to concern to the needs of
(2000), existing studies of the relationship future generations.
between social responsibility performance The consumptions made by a company
and company performance suffer from sev- as the input to produce and to provide goods
eral important theoretical and empirical limi- and services, should not negatively impact
tations. One major concern is that those stud- the quality of the consumption of future
ies sometimes omit variables that have been generation. It is important to remind, espe-
shown to be important determinants of com- cially for companies, that generating profit is
pany performance. Based on King and Lenox not merely the aims of the business. Being
(2001), variables that are important to be de- care and responsible to the environment be-
terminants of company performance includes come important aspects in running the busi-
firm size, capital intensity, growth of the ness in order to increase the company’s
firm, leverage, and research and development reputation, increase profitability and bring
intensity. This present research does not in- benefits to the entire stakeholders.
clude those important variables. Obviously, stakeholders such as em-
A longer time frame is needed to ana- ployees, suppliers, governments, activist
lyze whether the practice of social responsi- group, investors, and communities’ around
bility or sustainability begin to influence the business are very important to be consid-
company performance positively. Social ered. Without the credibility and trust that is
demands on companies with respects to sus- put by them, business is impossible to run.
tainability also must be taken into account. In addition, this world now has been facing
In society, changes the value increase nor- global warming and climate change prob-
mative demands of CSR (Lopez, 2007). It lem. The awareness of a company regarding
means that, positive consequences, between those problems is a must. That is why be-
sustainability performances towards com- sides improving the profitability, a company
pany’s performance, be achieved only if the should be responsible for managing the sus-
sustainability practices are integrated into tainability.
business model and strategic decision. In For investors, it is important for them to
addition, time frame of research influences be selective in making investment decision.
the results. Thus, this research needs longer Besides making investment decision based
time frame in evaluating the relationship on information of financial performance, it
between economic and environmental dis- would be better if investors also consider
closure and company’s performance. about the performance of companies in man-
aging sustainability. They should consider
CONCLUSION, IMPLICATION, SUG- about this non-financial aspect in making
GESTION AND LIMITATIONS investment and lending decision. Investing
It can be generalized that sustainability re- in profitable and socially responsible com-
ports does have an association with company panies would be better than investing in a
performance. However, further analysis company with a high profitability but have
shows that only social performance disclo- been neglecting the environment. High prof-
sure has an association with company’s per- itability might be look good in the eye of
formance. For companies, improving sus- only one part of stakeholder that is investors.
tainability performance is important. Even it Whereas, high performance of sustainability
is as important as improving company’s fi- might be look good in the eye of the entire
nancial performance. Sustainability means stakeholders. The research result that sus-
the development that meets the needs of the tainability performance does significantly

270
Journal of Economics, Business, and Accountancy Ventura Volume 15, No. 2, August 2012, pages 257 – 272
Accreditation No. 110/DIKTI/Kep/2009

influence company performance may sup- 25(2), 128-157.

port a decision of a company to improve its Choi, Frederick DS and Gary K Meek, 2008,
performance in managing sustainability. International Accounting. 6th Edition,
This research possesses some limita- New Jersey: Pearson Prentice Hall.
tions. Firstly, the sample is only 32 compa- Cohen, Mark A and Shameek Konar, 2001,
nies. There are still few companies that pub- ‘Does the market value environmental
lish sustainability reports. Most of those performance?’, The Review of Eco-
companies report are still in the form of CSR nomics and Statistics, 83 (2), 281-289.
report. For the next coming year, the number Cortez, Michael Angelo A and Chynthia P
of company publish sustainability report Cudia 2010, ‘Sustainability Innovation
might improve as the improvement in stake- and the Impact on Financial Perform-
holder demand and environmental concern. ance of Japanese Automotive and
The more the companies observed, the more Electronics Companies’ Journal of In-
the sample, the more representative, the bet- ternational Business Research, 9 (1).
ter the result could be. Secondly, the obser- Deegan, Craig, 2000, Financial Accounting
vation is only four years from 2006-2009. Theory, Beijing: Mc Graw Hill.
For the next researcher, due to inconsis- Dincer, Banu, June, 2011, ‘Do the Share-
tent result, it is better to consider the most holders Really Care about Corporate
appropriate measurement of sustainability Social Responsibility?’, International
performance, and to reevaluate other impor- Journal of Business and Social Sci-
tant variables that could determine com- ence, Vol. 2 No.10, June.
pany’s performance. In addition, future re- Elkington, J 1998, Cannibals with Forks:
search may consider longer time frame in The Triple Bottom Line of 21st Cen-
evaluating the relationship between sustain- tury. Business, New Society.12
ability reports and company’s performance Freeman, RE 1984, Strategic Management,
since sustainability performance may affect A Stakeholder Approach, Pitman Pub-
the financial performance in the long term. lishing Inc, Massachusetts.
GRI 2006, Sustainability Reporting Guideli-
REFERENCES ness, Global Reporting Initiatives.
Aras, Guler and David Crowther, 2009, Hubbard, Graham, 2008, December 15, Be-
‘Corporate Sustainability Reporting: A yond Accounting-Assessing the Impact
Study in Disgenuity’, Journal of Busi- of Sustainability Reporting on Tomor-
ness Ethics, 87: 279-288. row’s Business. A Discussion Paper,
Aupperle, K, a Carrol and J Hatfield, 1985, Adelaide, Australia.
‘An Empirical Examination of the Re- Hummels, Harry and Diederik Timmer, 2004,
lationship between Corporate Social ‘Investors in need of social, ethical and
Responsibility and Profitability’. environmental information’, Journal of
Academy of Management Journal, Business Ethic, 52(1), 73-84.
28(2), 446-463. http://www.industryweek.com/articles/corpo
Basamalah, Anies. S and Johnny Jermias, rate_sustainability_23658.aspx (ac-
2005, ‘Social and Environmental Re- cessed on January 20, 2011).
porting and Auditing in Indonesia: Kieso, Donald E, Jerry J Weygandt and
Maintaining Organizational Legiti- Terry D Warfield, 2007, Intermediate
macy?’, Gadjah Mada International accounting, 12th Edition, New York:
Journal of Business, 7(1), 109-127. John Wiley and Sons.
Bebbington, J 2001, ‘Sustainable Develop- King, Andrew A and Michael J Lenox,
ment: A Review of the International 2001, ‘Does it really pay to be green?
Development Business and Account- An Empirical Study of Firm Environ-
ing Literature’, Accounting Forum, mental and Financial Performance’

271
ISSN 2087-3735 The Impact of Sustainability … (Annisa Hayatun N. Burhan)

Journal of Industrial Ecology, 5(1). ness Review, 1(2), p. 91-111

KPMG 2008, Sustainability Reporting: A Nakao, Yuriko, Akihiro Amano, Kanichiro
Guide. Australia Matsuma, Kiminori Genba, and Ma-
Lind, Douglas A, William G Marchal, and kiko Nakano, 2007, ‘Relationship be-
Samuel A Wathen, 2008, Statistical tween Environmental Performance and
Techniques in Business and Econom- Financial Performance: An Empirical
ics with Global Data Sets, 13th Edition, Analysis of Japanese Corporations’,
New York: Mc Graw Hill. Business Strategy and the Environ-
Lopez, M Victoria, Arminda Garcia, and ment, 16, 106-118.
Lazaro Rodriguez, 2007, ‘Sustainable Ngwakwe, Collins, C 2008, ‘Environmental
Development and Corporate Perform- Responsibility and Firm Performance:
ance: A Study Based on the Dow Evidence from Nigeria’, Proceeding of
Jones Sustainability Index’, Journal of World Academy of Science, Engineer-
Business Ethics, 7, 285-300. ing, and Technology, 36.
Lorenzo, Jose´-Manuel Prado, Luis Rodrı´gu- Russo, M and P Fouts, 1997, A Resource-
ez-Domı´nguez, Isabel Gallego-A´ lva- based Perspective on Corporate Envi-
rez and Isabel-Marı´a Garcı´a-Sa´n- ronmental Performance and Profitabil-
chez, 2009, ‘Factors Influencing the ity. The Academy of Management
Disclosure of Greenhouse Gas Emis- Journal, 40(3), 534-559.
sions in Companies World-Wide’, Ma- Sekarsari, Kurnia, 2008, ‘Pengaruh Envi-
nagement Decision, Vol. 47 No 7, ronmental Disclosure terhadap Profit-
1133-1157 abilitas’, Skripsi S1, Universitas Gad-
Lougee, Barbara and James Wallace, 2008, jah Mada, Yogyakarta.
‘The Corporate Social Responsibility Sitepu, Surya Syahputra, 2009, Pengaruh
Trend’, Journal of Applied Corporate Pengungkapan Tanggung Jawab
Finance. Sosial terhadap Kinerja Perusahaan,
Maharani, Anindya, 2003, Pengaruh Envi- Skripsi S1, Universitas Gadjah Mada.
ronmental Disclosure terhadap Harga Teoh, SH, I Welch and CP Wazzan, 1999,
dan Return Saham: Studi Empiris ‘The Effect of Socially Activist In-
pada Perusahaan Manufaktur di vestment Policies on The Financial
Bursa Efek Jakarta, Skripsi S1, Uni- Markets: Evidence from the Sputh Af-
versitas Gadjah Mada, Yogyakarta. rican Boycott’, Journal of Business,
McWilliams, Abagail and Donald Siegel, 72(1), 35-89.
2000, ‘Corporate Social Responsibility Undang-Undang No 40 tahun 2007 tentang
and Financial Performance: Correla- Perseroan Terbatas
tion or Misspecification?’, Strategic Weygandt Jerry J, Donald E Kieso, and Paul
Management Journal, 21, 603-609. D Kimmel, 2007, Accounting Princi-
Morhardt, J Emil, Sarah Baird and Kelly ples, 8th Edition. New York: John
Freeman, 2002, ‘Scoring Corporate Wiley and Sons.
Environmental and Sustainability Re- White, Gwendolen, B Fall, 2005, ‘How to
ports Using GRI 2000, ISO 14031 and Report a Company’s Sustainability
Other Criteria’, Corporate Social Re- Activities’, Management Accounting
sponsibility Environmental Manage- Quarterly, Vol. 7 No. 1
ment, 9, 215-233. Wright, P and Ferris, 1997, ‘Agency conflict
Nakamura, Eri, 2011, ‘Does Environmental and corporate strategy: The effect of
Investment Really Contribute to Firm divestment on corporate value’, Strate-
Performance? An Empirical Analysis gic Management Journal, 18 (1), 77-
Using Japanese Firms’, Eurasian Busi- 83.

272